Peak oil in America

The following is an article I prepared for the Peak Oil Review, which is produced by the Association for the Study of Peak Oil and Gas.

The United States was blessed with abundant reserves of crude petroleum, high quality and easily taken from the ground. Up until 1973, we were the world’s biggest producer of crude oil, and even today remain the third biggest, ranking behind only Russia and Saudi Arabia.

Includes lease condensate and excludes natural gas liquids, other
liquids, and refinery process gains. Data source: Energy Information Administration href="http://www.eia.doe.gov/emeu/aer/txt/stb0501.xls">[1],
[2]
US_production.gif

However, the amount of oil produced in America each year has been on a path of inexorable decline now for two generations. That decline occurred despite the discovery and development of the supergiant field in Alaska’s Prudhoe Bay, despite the fact that the U.S. drilled as many feet of exploratory and development wells between 1981-1985 as it had from 1951-1965, despite the fact that an increasing fraction of U.S. crude oil production has been coming from under the sea (and that from ever-increasing depths), and despite tremendous technological advances over this period.

The long-continuing and inexorable decline in U.S. crude oil production resulted not from a lack of cleverness or paucity of effort, but instead is the necessary consequence of the geologic reality that oil is a depletable resource– you can’t take the same oil out of the ground twice. No matter what we do, we can’t turn the clock back to 1970.

The same thing will eventually happen elsewhere, as indeed it already has for Europe’s North Sea or Mexico’s Cantarell, the latter having been the world’s second-biggest producing field. There are arguments over when that eventual decline in global crude oil production will set in. Some argue cogently that this global decline has already begun, while others regard it as still a number of years or decades away.

I would like to avoid a discussion of exactly how soon we will arrive at the global version of the pattern observed in the U.S. data above. Although that’s a very interesting and important question, it’s potentially a distraction from the main point I hope to make here. And that is that the peak in U.S. oil production has already produced some very profound changes in our world.

One unavoidable implication of the dual realities that U.S. oil production keeps falling and U.S. oil consumption keeps rising is that the volume of oil that we import from abroad has steadily risen, currently standing at around
10 million barrels of crude oil and an additional three-and-a-half million barrels of petroleum products every day, at a total cost of 300 billion dollars last year (see BEA
Table 4.2.5). That represents a phenomenal transfer of wealth. To borrow Peter Schiff’s illustration, suppose we were to try to pay for this by selling off U.S. companies of the size of Unocal (the bid for which from a Chinese oil company two years ago generated quite a controversy). If we gave entire ownership of a different American company of this size to foreigners once each month as partial payment for the oil we import, we’d still fall far behind in meeting the current oil import bills.

And where is this transfer of wealth going? The list of the world’s main oil exporters is hardly a group that the United States would like to see grow more powerful and rich as we sink further in debt. The influence that Saudi Arabian wealth can buy seems likely to have played no small part in the radicalization of Islam, both in the U.S. and around the world. And you must have also noticed that we’ve recently entered an era in which anyone who publicly criticizes the leader of Russia seems to end up dead. Mahmoud Ahmadinejad has declared he’d sacrifice half of Iran for the sake of wiping out Israel, and oil wealth will surely provide him the means to do so. By comparison, the belief by Venezuelan President Hugo Chavez that the U.S. President is the devil seems almost tame.

But if we want to acknowledge the real damage to U.S. interests, it is impossible to overlook Iraq. Now, I am not among those who believe that the purpose of the most recent war was to secure a U.S. supply of oil. But I do think that the war would not have happened if Iraq was a country with no resources. The risks from having someone like Saddam Hussein in control of such a vast sum of wealth, and fear of the damage he could cause with it, was in my opinion a key reason that the U.S. initiated that ongoing profound bloodshed.

If the U.S. were today to stop importing oil, the price on world markets would plummet, which would pull the rug out from under these and other potential enemies in a far more effective way than the U.S. armed forces, for all their might, are able to achieve through military operations.

So why don’t we do it? President Richard Nixon said we should, in his 1974 State of the Union Address:

Let this be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.

As did President Jimmy Carter in April 1977:

These are the goals we set for 1985:

  • Reduce the annual growth rate in our energy demand to less than two percent
  • Reduce gasoline consumption by ten percent below its current level
  • Cut in half the portion of United States oil which is imported

President George H.W. Bush reaffirmed the desirability of that goal in October 1991:

When our administration developed our national energy strategy, three principles guided our policy: reducing our dependence on foreign oil, protecting our environment, and promoting economic growth.

His son, President George W. Bush, expressed the concerns more starkly in his 2006 State of the Union Address:

here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world.

And, looking ahead, Senator Hillary Clinton (D-NY) has helped launch the Democrats’ “Energy Independence 2020″ plan.

So why, if all these leaders believed it is such a good idea to reduce U.S. oil imports, has it not happened?

The answer is that it’s very hard to do. There’s no apparent way to bring U.S. oil production back up, and reducing demand is extremely painful.

And that gives me a certain perspective on the question of what will happen when we see on a global basis the same inexorable decline in crude oil production that’s already apparent for the U.S., the North Sea, and Mexico. Some say, when we really need it, we will find a solution.

But I say, we really need it right now.



Technorati Tags: ,
,

StumbleUponLinkedInReddit

97 thoughts on “Peak oil in America

  1. Oystein Sjolie

    All those leaders say it is a good idea because they think they will win elections saying so. It is not a good idea. Of course, the concept of energy independence sounds nice, but so does the concept of clothing independence, computer independence etc etc. It is much more efficent, both for the US and the Saudis, if Saudi can produce and sell oil to the US, and US offers industrial products (like arms) and treasuries in return. The idea hiding underneath “energy independence” is lousy.

  2. Ezequiel Martin Camara

    And you forgot: US production has been going down *even while oil price has gone up*, several times over. Some with blind faith on high school level economics say that there are enormous quantities of petroleum all over the world, waiting for the right price. Well, the price has been pretty good, and raising, for the last few years. But oil production is flat.
    And the Chinese and the Indian are arriving to the party now, what are they going to burn?
    I just hope we electrify everything fast. Why is not everyone building Silicium plants for the solar industry? That is how capitalism works?

  3. Hal

    “The long-continuing and inexorable decline in U.S. crude oil production resulted not from a lack of cleverness or paucity of effort, but instead is the necessary consequence of the geologic reality that oil is a depletable resource…”
    This is not necessarily true. Even though oil is in fact a depletable resource, that does not in itself logically imply that U.S. crude oil production would decline from its peak in the 1970s to the present day; nor does it strictly imply that U.S. oil production will never again rise or even exceed its previous peak. Such events may be unlikely in practice, but their impossibility is not the necessary consequence of any geologic reality.

  4. touche

    Some say, when we really need it, we will find a solution. But I say, we really need it right now.
    I agree with you. However, our political system is so neanderthal that its only fanciful thinking that the US could ever preempt this inevitable crisis. We are also ignoring global warming and our mushrooming debt. We would rather play Don Quixote in the war on terror than address any real impending crisis.

  5. T.R. Elliott

    JDH wrote: (1) I am not among those who believe that the purpose of the most recent war was to secure a U.S. supply of oil and (2) The risks from having someone like Saddam Hussein in control of such a vast sum of wealth, and fear of the damage he could cause with it, was in my opinion a key reason
    I agree with the first statement. But I think the second statement is a too extreme in the other direction. Saddam Hussein was enabled by our policies in the past, just as Iranian antipathy towards the US must take into account of our role in removing their democratically elected government followed by the installation of the pro-western Shah. Saddam Hussein was a convenient excuse for the US to tryonce againto strengthen our position in the middle east through force bydirectly or indirectlyoverthrowing a sovereign government. Saddam Hussein was largely contained, he was not a threat at the time of the second gulf war, and the arguments that he was a threate.g. WMD–were largely specious.
    JDH wrote: The answer is that it’s very hard to do. There’s no apparent way to bring U.S. oil production back up, and reducing demand is extremely painful.
    True. Its not painless. But the US could have put in place policies that would have reduced our consumption. But many free market proponents argued against any interfering with markets. When George Bush Sr. told us that the US standard of living was non-negotiable, his implication was that driving large SUVs was not negotiable. This mindsetsupported by the likes of the WSJ opinion page, Cato, and similar libertarian extermistshas interfered with the ability of the US government to make sensible policy. In fact, I believe they have made it impossible to discuss sensible policy. And there are sensible policies that could be put in place that would have helped, at minimum, to reduce the rate of growth in demand for foreign oil.

  6. odograph

    Oystein, I think that if we can guarantee friendly relations with the major oil producing nations over the coming decades (should I say century?), and if we can guarantee that none of them will ever try to impede the flow of oil to advance their own strategies or national agendas … then there is no problem going with the “efficient markets by international trade” solution. Can we make those guarantees?
    Hal, I think the decline in production proves at least that we do not know how to produce higher volumes with today’s technologies and for today’s prices. The question is how much we want to bet on “inventions to be made later” (or even “rational decisions to be made later”). See also Nassim Taleb’s The Black Swan & etc.

  7. Ken Ambrose

    I think that the question is much beyond who should produce petroleum products. Clearly the Saudi’s have a competative advantage. However we do have a large group of smart people. While our advantage is shrinking in this field, we can replace consumption with changes in technology. Previous efforts have already developed 50 and 80 mpg cars (I believe that the Chicago Sun Times reported on this under their “Super Car” special edition) with cost of a few thousand dollars. Now the cost of a few thousand dollars looks pretty cheap compared to the cost of a 1000 gallons of gasoline.

  8. odograph

    I’ll try to be brief on the war and oil thing: I think it was a bigger factor than we like to admit, even though “the deal was structured” so that we did not have to buy into “war for oil” explicitly. I think future generations, looking back, will be more willing to call oil one of the foundations for this war, though not the only one by any means.

  9. Hal

    The other thing to keep in mind is that for most of that long decline, oil prices were not all that high. They’ve been falling since the early 1980s and only turned around after 2000 or so. Prices didn’t break $30 from 1981 until 2003. Even today they say that oil company executives make their planning decision on the basis of $30 oil even though many observers see $50 as a floor for the foreseeable future, with $60-70 of course being the recent trend and even higher prices possible.
    All those politicians’ failed promises don’t mean much in our private enterprise economy where price signals are what guide investment. Back around 1980 when prices temporarily spiked we did in fact see a lot of investment in shale oil and other technologies, but all that was tossed in the trash when prices collapsed a few years later.
    The bottom line is that you can’t use the American peak oil experience as a model for the world. When America peaked we just went somewhere else for our oil. That’s why prices got so low even as American production was falling. When the world peaks it will be a very different story. Price signals will be different and expectations for future prices will be different. I don’t see much reason to expect the resulting course of events to resemble the American experience at all.

  10. odograph

    Hal, can’t we look at the technologies now used to push North American production as evidence that we are at extremes? You could say we “just went elsewhere” but we also went to tar sands and to deep offshore … we wouldn’t do that if there was easier oil to be had (here).

  11. Robert Schwartz

    One major reason that we have had so little success in solving our energy problems is that our elected leadership, under the baleful influence of the the so-called “environmentalists” and their false religion, the scientific geniuses who run the media who natter on without the slightest idea of what they are saying, and the leftists who dominate academia who hate this country with a burning passion, has thwarted every attempt to expand areas under exploration and development, has let greedy and unprincipled lawyers and the even more self-aggrandizing idiots in black robes stall every attempt to implement new technology, and has utterly failed to push ahead with the one safe, clean and cheap energy technology that was invented within living memory — nuclear power.
    At some point we will truly suffer the consequences of our folly and we will reject those dingbats and yahoos. But until then I am planning on staying warm by burning sierra club members.

  12. bartman

    It’s really sad when economists I used to respect start to implore politicians to “do something!!”

  13. Hsapien

    I guess I was censored the other day because I was “malicious” towards the cornucopians. Alas, I apologize.
    This book is useful reading before wandering into territory one is not fully informed on…
    http://www.amazon.com/Something-New-Under-Environmental-Twentieth-Century/dp/0393321835
    Hal wrote,
    “This is not necessarily true. Even though oil is in fact a depletable resource, that does not in itself logically imply that U.S. crude oil production would decline from its peak in the 1970s to the present day; nor does it strictly imply that U.S. oil production will never again rise or even exceed its previous peak. Such events may be unlikely in practice, but their impossibility is not the necessary consequence of any geologic reality.”
    Um, read up on your M. King Hubbert and get back to me. I believe the journal “Science” among others have published the geologist’s work. Let me know where I can get some of what your smoking, because if you think that US oil production is headed north of 9mbpd again then you must be floating around your keyboard when you type, man…

  14. Green Marketeer

    Anyone reading current discussions of energy consumption and global warming might well think that the only feasible options to address these problems are going to be enormously expensive and will have significant impact only in the long term.

    Fortunately, there are some policy options available that would almost immediately start to reduce energy consumption and greenhouse gas emissions, and would do so without raising taxes, increasing the budget deficit, developing new fuels, building new refineries, drilling in environmentally sensitive areas, or replacing gas-guzzlers with hybrids. In addition, these policies would also put more money in most people’s pockets and reduce costs related to accidents, traffic congestion, local air pollution, and transportation infrastructure.

    This combination of benefits can be achieved because the US transportation sector suffers from two enormously inefficient market distortions that encourage excessive driving: unlimited-mileage per-year auto insurance and “free” employee parking.

    Currently, car insurance is sold on an unlimited mileage, per-year basis. In their 2006 paper “The Accident Externality from Driving” (reviewed in the November 16, 2006 NY Times), Aaron S. Edlin of UC Berkeley and Pinar Karaca-Mandic of RAND show that drivers crash-related costs may be four or five times larger than what they are currently paying for liability and collision coverage. When accident costs are thus “externalized”, drivers receive an erroneously low price signal, creating a powerful incentive for all motorists to drive more than they would otherwise and resulting in subsidies from low-mileage drivers to high-mileage drivers.

    William Vickery, who was awarded the Nobel Prize for Economics in 1996, proposed an alternative that bases premiums on miles driven in addition to existing rate factors. Within any rating class, the less you drive the more you save, so every driver enjoys an incentive to reduce those miles that provide the least benefit, while preserving the option of driving when the perceived benefit is great. Todd Litman of the Victoria Transport Policy Institute estimates that the introduction of per-mile auto insurance could reduce total vehicle miles traveled (VMT) by 15% of more, with corresponding reductions in gasoline consumption and CO2 emissions. And because a relatively small number of high-mileage drivers account for a large percentage of VMT, most drivers could expect to pay less for per-mile insurance than they do currently.

    Insurance companies won’t voluntarily adopt the per-mile basis because any firm that did would bear all the costs of doing so, but its competitors would reap most of the benefits. Therefore, public policy measures requiring all insurance companies to offer per-mile insurance (at least as a consumer option) are needed to eliminate this market distortion.

    The second economic inefficiency of the current US transportation sector is “free” employee parking at work, a benefit that is currently included in the compensation package for almost all US employees. Of course, this parking benefit is not free, but has a cost from $25/month to $100/month or more, reducing employees’ take-home pay whether they use it or not. Thus, employees currently face an enormous incentive to drive alone to and from work.

    The solution to this market distortion is to require employers who offer subsidized parking to also offer the cash equivalent to employees who use alternative commute modes. This allows those who choose to walk, bike, carpool or ride transit to pocket the parking cost savings that occur. Where this “parking cash-out” has been implemented, up to 30% of employees have opted for the cash payment and alternative work commute, demonstrating this measure’s potential to substantially reduce traffic during the morning and evening rush hours. After adoption of parking cash-out, employers would be able to sell or put to more productive use the land formerly used for parking.

    Both per-mile auto insurance and employee parking cash-out would significantly reduce energy consumption and greenhouse gas emissions by removing market distortions that encourage excessive driving. They would start to work as soon as enacted. They require no expenditure of public funds or subsidies to implement, nor do they require large, long-term investment from the private sector. However, the true beauty of these proposals is that, rather than merely transferring resources from one group in the economy to another, they would result in a net increase in consumer welfare by increasing the efficiency of the transportation sector.

    See the work of Arron Edlin and Todd Litman for more details

  15. Hsapien

    Robert Schwartz,
    One major reason that we have had so little success in solving our energy problems is that our elected leadership, under the baleful influence of the the so-called “neo-conservatives” and their false religion, the religious fundamentalists and Oil industry executives who run the media who natter on without the slightest idea of what they are saying, and the conservative-know-it-all dickwads with their strawman, who dominate think tanks and foundations, who hate this country with a burning passion, has thwarted every attempt to expand human consciousness and human hebavior, has let greedy and unprincipled lawyers and the even more self-aggrandizing idiots in black robes stall every attempt to implement regulation and a steady state economy… and has utterly failed to push ahead with the one safe, clean and cheap energy technology that was invented within living memory — nuclear power.
    At some point we will truly suffer the consequences of our folly and we will reject those conservative dingbats and libertarian assclown yahoos. But until then I am planning on staying warm by burning RNC members.
    nyah nyah nyah.

  16. dryfly

    Schwartz, you hate this country and your allies hate this country. Go back to Israel where you belong.

  17. Hsapien

    dryfly,
    That was uncalled for… My rebuttal sufficed nicely, but you have to go off and be a racist all the while bringing a tangential issue to bear in a grossly irresponsible manner. Either your trying to make liberals look bad here, or you are making liberals looking bad. I think it might be the former. Effortlessness really does take skill, from either direction, does it not?

  18. FTX

    As I read another of your persuasive and well-informed essays on this issue Prof H, I’m once again left wondering why so few of your colleagues seem to be engaged in this debate. Irrespective of any argument as to when a peak in world oil production will occur, surely only a blind man can fail to see that the chess pieces that are being moved now on the energy front across the globe are going to shape the geopolitical world for decades to come, with all the consequences that implies for economic stability and growth.
    Increasingly it is becoming apparent that the resolution to the U.S.’s huge deficit from the importation of oil and petroleum products will have to come (at least in the short term) on the demand side, and it’s here that the input of economists is most needed. Either this adjustment can be controlled with the assistance of sensible fiscal mitigation policies, or it can be painful if the market is allowed to impose its own solution – quite possibly a very abrupt one.
    At first I thought economists were steering clear of this subject because they viewed it as some sort of academic suicide if they even dared broach it. The problem of America’s oil dependency had seemingly become taboo for the profession, perhaps because they perceived it was all too easy to become associated with alarmism and hysteria. However, your own persistence on the matter seems to have disproved this.
    So, I’m bound to ask you, when you sit down for a coffee with your fellow economists at some conference or other and perhaps mention your concern regarding that $300bn import bill, what reaction do you receive? Blank looks? A sudden embarrassed change of subject on to more ‘serious’ matters? Or is the issue debated with only a shallow appreciation of the underlying factors?
    I’m not denigrating your peers, and I wouldn’t for a moment expect you to do so either. But I do think that the apparent reluctance of mainstream economists to take the time to familiarize themselves more fully with the realities of the global energy situation is something that is sooner or later going to bite them hard.
    And unfortunately, this lack of preparedness is only going to make things more difficult for the rest of us.

  19. Anonymous

    Not included in this analysis is this fact that the US has chosen not to develop substantial oil fields in Alaska and off the east coast, predominantly for environmental reasons. It’s pretty rich to be fretting and whining about the perils of foreign oil dependence when you’re making a choice to limit domestic production to effectively offshore the environmental costs.

  20. odograph

    Anonymous, I think many of us consider those forbidden fields to be “small” – too small to worry about in terms of national or global production decline.

  21. Jeff Hallman

    FTX wrote:

    “As I read another of your persuasive and well-informed essays on this issue Prof H, I’m once again left wondering why so few of your colleagues seem to be engaged in this debate.”

    For the most part, academic and professional economists are irrelevant to economic policy debates. Almost everyone thinks they know what good economic policy is, and the opinions of actual economists don’t seem to carry much weight in policy debates. Witness, for example, issues like rent control, minimum wage, free trade, school choice, agriculture subsidies, etc.

    There is near unanimity in the profession on these issues, but it doesn’t seem to matter. Why should oil be any different?

  22. Hsapien

    Anonymous,
    The best argument I always hear with regard to the *remaining* Alaskan oil and and other untapped sources in the US (there aren’t many) is that they should be left untouched for later generations–seeing as you and I and our parents and their parents have been getting way too many free rides during the 20th century up until today, with little if any restraint… Anyway, even if we did drill US oil production is not going up! Get it through your skull so you won’t be befallen by the idiotic PR tactics of oil companies and their irresponsible “leaders”. It is time to wise up and realize we are profligate users of crude oil and natural gas, and if we tap everything out later generations are going to be that much more screwed over by our childish and churlish behavior,
    It will never surprise me to see how gullible people like yourself are to the arguments by the Big 3 of what independent oil geologist Jeffrey J. Brown has called the “Iron Triangle”, who he’s written comprise:
    “(1) most auto, housing and finance companies; (2) most of the mainstream media and (3) most major oil companies, major oil exporters and the energy analysts that work for the major oil companies and major oil exporters.”
    So, of course, anonymous, you are not alone–and you’re either part of one of the vertexes in the “Iron Triangle” or have been taken in by the propaganda put out by them. Either way, like I’ve said before if we’ve got plenty of you then we are in for a difficult ride, but that probably goes without saying…

  23. GWG

    Great post. We pretty much know the answer – incrementally higher gas taxes to push the free market to find alternatives over time. But as you say this is considered too painful so we put off the day of reckoning until something major happens (like war which results in the closing the Strait of Hormuz) and we are all left with 15 mpg SUV’s sitting in our driveways.
    A few people recognize this as the national security issue that it is – like James Woolsey – but unfortunately all we get from politicians is an increase in CAFE standards and lip service about ethanol.

  24. Rich Berger

    Professor-
    Hal is right – in real terms oil peaked in December, 1979 and fell to a level only 10-20% of the peak cost by the mid-80’s. The price did not recover above 30% of the peak until 2000-2002. Your graph doesn’t conclusively demonstrate peak oil in the US; could easily be the idling of US producers whose marginal cost was higher than the costs with shipping of foreign producers.
    One other site that I read (dailyspeculations.com) had a post in the last few weeks indicating activity in the US oil production market is heating up, spurred by higher prices. Don’t know if that is definitive, but that is what you would expect to see if the higher prices now make more US wells economically viable.

  25. chilton thomson

    My congratulations again to Professor Hamilton! Even without a mention of gold or real estate, this thread is shaping up well. Not only has some nasty, slimey anti-Semite crawled out from under his rock, but that good, familiar crack-pot tone is developing nicely.
    My hope is that Professors Hamilton and Chinn will turn this blog into a published compilation of nutty economic ravings. Could be the biggest seller since Freakonomics. And much funnier.
    But where is PhD Electrician?

  26. Scott Peterson

    Actually, one significant factor in the decrease in US oil production has been the restrictions put in place on exploration in the coastal waters of the US due to environmental conditions. There may be oil in those places or not. But failure to explore in certain areas has to be considered as a factor in the decline in US oil production.

  27. Hsapien

    Rich Berger wrote.
    “Your graph doesn’t conclusively demonstrate peak oil in the US”
    Wow. The incredulity of some people is truly stunning. It almost seems as if we could be “debating” whether or not the evidence is out on evolution, or perhaps even more far-fetched–“discussing” the merits of a flat earth theory (which lots of prominent people these days are coming out of the wood work to support these days–Thomas L. Friedman anyone?)
    US oil production peaked in 1970-71, regardless of our greatest efforts for almost FOUR decades to make it do otherwise.
    There are geological limits, and there ARE limits to growth. The fact that as a species we refuse to acknowledge this and are enthralled by joyfully sticking our heads in the sand is indicative of the amount of psychological denial people are in about us and our place in it.
    Get over it.
    The problem is far beyond partisan politics, differences on human “morality” and bigoted political psychologies which dictate an us vs. them nativism (which is probably, sadly hardwired to some extent–at least as a major disposition).
    Humans need to start understanding that in order for us to maintain civilization the way we have grown accustomed to it, we are going to have to modify our behaviors and our way of life. It is not matter of choice anymore.
    Yes, because of this denial, I am of the firm “belief” that things will have to get much worse before they get any better… for all the reasons Prof. Hamilton and many others have been spelling out for decades, hell, a little over half a century, ever since M. King Hubbert started publishing in the journal “Science” in the late 1940s, early 1950s.

  28. Dirk van Dijk

    The operative phrase should be “all of the above” when it comes to getting more energy. Nukes sure (just make sure to get the waste disposal system in operation first, having lots of radioactive waste laying around above ground in this day and age is suicidal). Drilling off the east coast/easter GOM, sure, esp for gas, since there never was a case of wildlife being covered with natural gas or beaches being fouled with it. For athestetic reasons perhas keep them 10 miles offshore. Tax gas more, you bet, but offset the regressive impact by doing something like expanding the std deduction and the EITC. Raise CAFE stds, yup and by much more than the recent bill in Congress does. While we are at it, how about a $1 a bulb tax on incandesent lite bulbs. Wind/solar yup, there should be wind farms just about everywhere you look and solar panels should become more or less standard on all new houses being built. Building codes should be written to insure energy efficency. Oh and lets get serious about coal gasification with carbon sequestration at the point of the gasification (the extra CO2 then used for tertiary oil recovery). There are tecnological solutions, lets get busy working on them, with lots more funding than we are currently doing.

  29. Bob

    A very rational missive, Professor.
    Question:
    Given world wide demand for oil is it possible for the U.S. to reduce, but not eliminate, demand to a point that the price would drop significantly? I also have this thing about enriching certain countries.
    For all who lament our current situation the problem, for the most part, is in the mirror. Think about it the next time you make an unnecessary trip to the convenience store in your truck or SUV.
    Or you can be like Dirk and rely on the government to tax you to kingdom come.

  30. Rich Berger

    Professor-
    I had forgotten one other important factor: from 1973-1981 price controls on US oil (and not on imported oil) suppressed incentives to increase production in the US. Yet another gift from the Nixon administration!

  31. Green Marketeer

    Yes, Bob, it is possible for the US to reduce demand; and No, Prof Hamilton, it doesn’t have to be painful. Above, I offer 2 policy proposals (per-mile auto insurance and employee parking cashout) that not only would reduce oil consumption and greenhouse gas emmisions by a significant amount, but would do so in a way that actually increased overall consumer welfare by eliminating economically inefficient elements of the transportation sector. I even cite my sources (including a Nobel prize-winning economist). Yet there is not even a single elaboration or even a response regarding these proposals. Instead we have a variety of geology-deniers who still think we can drill our way out of Peak Oil (please see Prof Hamilton’s post last week), the usual “let’s raise the gas tax” advocates (oblivious to the political obstacles), proponents of raising CAFE atandards (duh!), and nuke-niks who haven’t noticed that cars run on oil and who never tell us what they intend to do with all the radioactive waste.

    Come on people! If we are going to work our way out this box we’re in, we’re going to have to put on our thinking caps! We have to reduce demand and the first best way to do it is to increase the economic (not just technological) efficiency of our transportation sector through measures such as the ones I propose above.

  32. Hsapien

    US oil production never peaked, and the Nixon administration was great–they gave us real, genuine fiat currency.
    Berger, I must say, you’re a funny man!
    By the way, you forgot to mention how nice the Saudi’s were in the 1980s with their buddies the Americans in driving the price of oil so low it bankrupted the Soviet Union. If only we could have truly fearless leaders like Nixon and Reagan back, and the Saudis all to ourselves–ah, that’s right, but the Chinese would be jealous!

  33. vorpal

    I love the comments here. I love them because many of them are so ill-informed that it convinces me that our country truly is incapable of adjusting to the truth and we will get our just desserts. call it schadenfreude.
    1) the physicists know that the US is in depletion. why can’t some of you accept it? Do you really think that you can outsmart PhDs in physics that have spent their lives studying these things? That is _hubris_.
    2) No, their is only one solution to reducing demand (legally). Even high school student (should) know the answer to this one. To reduce demand, you increase the price. Conservation does not reduce demand. Efficiency does not reduce demand. If you don’t believe me, take a look at electricity consumption. Efficiency there has grown in leaps and bounds, and consumption has grown as well. It’s called ‘the law of supply and demand.’ You can’t weasel out of it. You can’t put out a marketing campaign to change the laws of economics, no more than you can change the laws of physics with a billboard sign.
    I love to see people get indignant, because it means that they are hurting. It is nice to finally see the arrogance of America receive external feedback from reality.
    How deep in the hole are we going to get before we realize that our cars are killing our country?

  34. vorpal

    Prof Hamilton, it doesn’t have to be painful…I offer 2 policy proposals (per-mile auto insurance and employee parking cashout)
    Most people would not consider the above to be painless. If they were painless, then people wouldn’t change their habits and the above would be ineffective. By definition, pain must be inflicted. Yeah, let’s play semantic games, and see how far that gets us. goofy. truly goofy.

  35. vorpal

    I had forgotten one other important factor: from 1973-1981 price controls on US oil (and not on imported oil) suppressed incentives to increase production in the US. Yet another gift from the Nixon administration!
    Actually, we would have less oil if production had increased in the 80’s and 90’s. Production would, if anything, be lower now if it weren’t for (traitor) Nixon’s policy.
    Thanks for that nonsequitor Rich!

  36. Joseph Somsel

    “But I say, we really need it right now.”
    This has been my life’s work as a nuclear engineer. This need for an alternative to petroleum and coal was clear to those who looked back in 1970 when I declared my major field in college.
    Once the first fleet of reactors was completed, it has been extremely frustrating to watch all the forces of media disinformation, legal obstruction, and social conformity work against any realistic solution to the problem.
    Worst have been all the obviously unworkable proposals but forward since then. All the wind, solar, ethanol, biodiesel, etc are is a waste of time and money and this fact is predictable from physics, biology, and basic economics.
    Sorry but the remaining major energy source available to mankind comes from nuclear fission of uranium and, in the future, thorium. Probably controlled nuclear fusion will work but it remains technologically unobtainable for the forseeable future.
    For example, the energy in a gallon of gasoline is delivered by nuclear fuel in current LWRs for 6 cents. Actual total production costs for practical transport fuel would be higher, of course, but eventually at the same general cost as gasoline today.
    Unfortunately, efforts to expand the applications of nuclear fission have been lackadaisical at best.
    Our efforts over the last 30 years have been diverted to no-win technologies while virtually ignoring what can really work.
    It has all the makings of grand, historical tragedy.

  37. Anonymous

    There are tecnological solutions
    You are wrong. The world’s appetite for energy is unlimited. This is an economic problem, and it requires an economic solution. Demand cannot be controlled with technology. Where did anybody get this hogwash?
    This is called putting the cart before the horse. When prices rise, efficiency goes up and consumption goes down. This does not mean that if efficiency goes up then consumption will go down. That is bad logic. You mistake a correlation for a causal relationship. This is foolish, but fashionable, it seems.

  38. Stuart Staniford

    Bartman wrote ‘It’s really sad when economists I used to respect start to implore politicians to “do something!!”‘
    Prof Hamilton is one of the world’s leading academic experts on the relationship of oil to the macro-economy, and he has studied the data here as carefully as anyone. You might want to think more carefully about what it means if he has shifted his position rather than shooting the messenger because you don’t like the message.

  39. Barkley Rosser

    Very fine summary, Jim.
    berger,
    I think you are thinking of “real prices,” not production.
    For those worrying about the price controls of the 70s, we had the oil import quotas starting in 1958, all to obtain energy independence for national security reasons (those were the official rationales, go check), which led to excessive drilling in the US during the 60s. All kind of balances out.
    Yes, there is oil in Alaska and some othe undrilled locations, but it does not amount to doodley-squat, not enough to offset the decline, not even close.
    Yes, we will probably need to increase nuclear, which would not have helped the use of gasoline in cars one iota, Mr. uber-nationalist Schwartz.
    And we should do all that other stuff like conservation and wind and solar and hybrids and so on.
    And, no, Mr. Green Marketeer, it will not be painless, although many of the mechanisms you suggest will be useful in delivering the pain to get people to do painful things.
    But, to all of you, yes, price increases will “work,” although that may mean by encouraging technological change to develop substitutes and get them used, rather than turning around a declining global production, once it sets in, although those rising prices will slow the decline as all those expensive tar sand sources and others get brought into production.
    And, as for the war situation, well, there does appear to be a small group in the administration and related to it for whom securing the oil in Iraq seems to have long been a major goal, with Cheney their main man. But I would agree with JDH that this was not the main driving force of the war.
    Also, another irony, the war’s having led to a breakdown in production, exploration, and all the rest in Iraq may lead to its being a much bigger player in the future as al Ghawar winds down and the prices really soar through the roof.

  40. Green Marketeer

    Vorpal et al

    Please look into per-mile insurance and employee parking cashout a bit more before you dismiss them as “semantic games, and…goofy, truly goofy”. You will find that, in effect, they do increase the price of operating a motor vehicle. Right now, that price does not include the actual marginal cost of insurance (see Edlin) or the cost of parking at work (see Litman or Donald Shoup at UCLA).The reason these proposals are not painful (at least in the aggregate)is because they eliminate economically inefficient arrangements.

    Currently low-mileage drivers are subsidzing the mileage-invariant insurance costs of high-mileage drivers. Move to per-mile insurance and you reduce the subsidy that creates (some of) the difference between the current price and the acutal cost of driving. The majority of motorists who currently drive less than the mean would immediately have their insurance costs reduced, and all drivers (even high-mileage ones) would be in a position to pocket savings from reducing their driving.

    Similarly, workers already pay for “free” parking at work in reduced take-home pay. When employees are offered cash instead of free parking, about 30% VOLUNTARILY take the money and find some other way besides single occupancy vehicle to get to work. The only reason they do so is because their welfare is increased by the cash more than the SOV commute/free parking.

    In general, I completely concur that you have to get the price right (ie price equal to marginal cost) if you want an economically efficient system. If marginal costs due to insurance, parking, infrastructure, pollution and congestion (to name only the major ones) were accurately incorporated into the price of driving, vehicle miles traveled (VMT) would drop by 50% (according to Todd Litman of the Victoria Transport Policy Institute, who has looked at this area quite extensively).

    Please do your homework and look at the research cited in my original post before you leap to any judgement about either the effectiveness or “painfulness” of these policy proposals.

  41. Anonymous

    Barkley-
    I thought it was pretty clear that I was referring to prices. If there were price quotas on foreign oil from 1958 on, I don’t agree that it balances out. If what you are saying is true, output would have been artificially higher pre-price controls, and artificially lower during the price control era (1973-1981). Absent these interferences, output would have been lower earlier and higher later and the shape of the production curve could have been quite different.
    I am sort of surprised by Professor H’s turnaround here. As I recall, one of his earliest posts on oil was an attempt to bridge the gap between engineers and economists. Now he seems to ignore the interaction between production and price. Surely the state of the art in oil exploration and extraction is a factor, but cost/price of oil determines what is actually done.

  42. Bob

    Green,
    Your proposal is intriguing and you most certainly defend it vigorously. However, it seems to me that it presupposes that people log hefty miles because they want to as opposed to because they have to. Have you considered the “stick” imposed on those who have no alternative? I live in a metro area of ~ 1.9 million. There is nothing much in the way of public transportation.
    On another economics oriented blog the topic of gas prices was raised with a suggestion that a tax be levied to artifically increase gas prices so we incur the pain that is so often mentioned. If I had any confidence that this tax would be used to fund viable gasoline alternative R&D I may reluctantly consider it though the affects on the working poor bother me.
    Since I have no confidence at all that the federal government would behave in such a responsible manner, it doesn’t work for me.
    Since there is a lot of discussion about “pain” – the “stick” as it were – does anyone have ideas about things like “incentives” or the “carrot”?
    I don’t like being beaten down with sticks.

  43. Hal

    Hsapien: “US oil production peaked in 1970-71, regardless of our greatest efforts for almost FOUR decades to make it do otherwise.”
    That’s the point I and some others are making: there is no evidence that we did in fact exert “our greatest efforts” in increasing US oil production during that time. Why should we, when oil was less than $20 a barrel for much of that time, and was freely available from other countries for much less than we could produce it for at home? JDH quotes some politicians, but the bottom line is that none of those politicians took steps which would have encouraged or forced us to exert maximal efforts to increase domestic oil. In fact there were a number of steps taken which would if anything reduce domestic oil production, such as the windfall profits tax from 1980-1988.
    Now, I’m not saying that if things had been different we would necessarily have increased U.S. production. Oil supply tends to be relatively inelastic and it’s possible that nothing would have made a difference. But we should be clear that that is an *assumption* unsupported by the historical evidence. In fact we did not try very hard to increase domestic production, despite all the rhetoric. We really can’t know how much difference it would have made.

  44. Bill Ellis

    I find it interesting that we assume that consumption can be altered by price, one of the basic economic assumptions in the supply and demand relationship. Yes, increased prices will reduce consumption. However, the supply, both in size and location is likewise a product of economics. The simple fact is that oil production will occur at the perceived lowest cost production site. The cost of production in the US has been at a general economic disadvantage for about a half century, with oil, with manufactured products, with . . .
    It is also interesting to note that public transportation is not the solution to reduced consumption. We do have a choice of where we work, and where we live. When the cost of transportation outweighs the benefits of our current choices, then we will choose to live, or to work, in different places. The reason that most markets don’t have public transporation is that there is an imbalance between the cost, and the demand.
    In analysis there are four basic theories presented here.
    1. It is the government’s fault.
    2. It is your fault.
    3. The world is ending.
    4. The world isn’t ending.
    Vote for one.
    Bill

  45. Green Marketeer

    Bob

    Thanks for your response. According to NHTS 2001, only 27% of miles driven are “to/from work”, while another 8% are classified as “work-related”. Arguably, these are the only “essential” miles traveled, although these are also the most easily replaced with car-pooling or public transportation use.

    These policy proposals qualify as “carrots” and not “sticks” because they put money in the pockets of people who are already driving less than average (per-mile car insurance) or already getting to work via car-pooling, transit, bike, or on foot (employee parking cashout). More importantly, they remove currently existing disincentives to ALL drivers to reduce VMT by allowing everyone to pocket insurance and parking savings that result from VOLUNTARILY driving less. Right now, people don’t drive less because they don’t pocket the savings (fewer accidents, less congestion, less pollution) that result.

    In addition, such measures allow each and every driver to reduce low-benefit VMT, while preserving the option of driving when the perceived benefit is great. If we get the price of driving right (ie include all marginal costs of insurance, congestion, parking infrastructure, and pollution), the market consisting of utility-maximizing consumers will take care of the rest.

  46. vorpal

    Since there is a lot of discussion about “pain” – the “stick” as it were – does anyone have ideas about things like “incentives” or the “carrot”?
    You can view high gasoline prices as being a ‘stick’ to keep you from driving.
    You want ‘carrots’ to encourage you to other alternatives, such moving closer to work, walking …etc.
    If these other options were subsidized by gasoline taxes then you would have yourself a genuine carrot…and a genuine stick.

  47. DickF

    JDH,
    I used the logic behind your peak oil graph to determine some other “peaks” and it has me really worried. The US is running out of everything. Here are just a few peaks to fret over.
    Peak Aluminum 1997
    Peak Copper 1997
    Peak Nickel 1997
    Peak Peat 1987
    Peak Silver 1997
    Peak Wood 1999
    Peak Gold 1998
    With some peaking long ago and no longer being produced in the US.
    Peak Antimony 1947
    Peak Tin 1945
    Do you realize that today we are totally dependent on foreign producers for the roofs of our storage sheds?
    Is it possible that maybe, just maybe, there are other things to consider than simple domestic production numbers to determine “peak” anything?
    Thanks to Hal, Rich, Joseph and others for thinking more deeply concerning this issue.

  48. George Barwood

    Professor Hamilton concludes: “Some say, when we really need it, we will find a solution. But I say, we really need it right now.”

    Depends what you mean by a “solution”.

    The solution is obvious, and will come about by the usual economic forces, no government or other intervention required.

    High prices will cause people to adjust their lives – they will live closer to where they work, they will drive less, they may telecommute etc.
    Businesses will also adapt. Of course technological changes will also come – such as electric vehicles.

    Possibly for someone living in the United States this is difficult to see, but from my UK perspective it is blindingly obvious. What is all the fuss about?

  49. Stuart Staniford

    DickF:
    Recent research says that since 2000, the short run price elasticity of gasoline is in the range
    -0.034 to -0.077. Let’s call it -0.05 for a round number. This implies that a 5% reduction in global gasoline supply causes a 100% increase in price (as a rough approximation, and admitting that the linear region of response might not be that large). Since increases in gas prices of this order of magnitude in a short period can cause serious civil unrest, or even riots, this implies that our social stability is now, to varying degrees, hostage to the political and economic stability of every country in the world that supplies more than a few percent of total oil supply. That’s the issue.

    In the meantime, income elasticity of gasoline demand is much larger (Hughes et al say 0.5, but my read of the VMT data says it’s closer to 1). So gasoline demand wants to keep going up in response to economic growth, but, at least according to the EIA global oil supply has not increased over the last two years. So it takes more and more price to bring demand in line with supply and the situation keeps tightening.
    However, the fact that we are paying for many of the basic resources we need from overseas with IOUs, not just oil, is probably worth worrying about. But few things have a short run elasticity of -0.05, and thus the potential to create massive social unrest based on small changes in supply. Food is probably the other main one (which ought to make folks think real hard about the wisdom of corn-based ethanol).

  50. T.R. Elliott

    To those who say “what’s the fuss,” I say you are missing the point of the post. There are economic issues to consider on the one hand. And strategic security issues on the other. JDH points out that, in the present case, the US–from a strategic security perspective–is allowing current market forces to fund people who would do violence to us given the opportunity. Saying “what is the fuss about” does not address the issue, simply ignores it.
    To those who say peak oil brings out the nuts, I say “so what, that’s a non-sequitor” or non-responsive as well. Look at the opinion page of the WSJ. I could argue that neoliberal economics brings out loonies. But I won’t argue against economics by somehow implying the field is bunk because Larry Kudlow or Stephen Moore spout nonsense in economic forums.
    Anyway. This will be the best of all worlds once the gold standard is reinstituted.

  51. Hsapien

    Aluminum is an element, with 82,000ppm–or with 8.2% of the earth’s crust made of of it. In soil it varies between .5 to 10% … No worries here DickF, sorry.
    Again, same with copper–it is an *element*, and composes 50 ppm of the earths crust, 20ppm in regular oil soil and is the 26 most abundant element on planet earth. Again, you strike out.
    Nickel, jesus, starting to sound like a broken record but this is also an element, approx 80ppm in the earth’s crust, 50ppm in soil amd23rd most abundant element on the planet!
    Peat? You’ve got to be joking… Yeah, exploiting wetlands peaked long ago because we realized that you can’t support industrialized economies with “peat”… Are you trying to be funny, like Berger?
    Skipping peat, onto silver now…
    Again, hate to repeat, but since you do it I’m forced into it…. Silver is 70parts per billion in the earth’s crust, .5 ppm in soil and the 66th most abundant ELEMENT.
    Gold is 1 ppb in the crust, ranging .05 to 8ppb in soil and is the 73rd most abundant element on the planet.
    Antimony is another element… approx .2ppm in the crust, 1ppm in soil and is the 63rd most abundant element
    Tin, ad nauseum another element… 2ppm in the crust, approx 1ppm in soil and would’ya have guessed it the 49th most abundant element on earth!
    For all these elements getting at them (from the human perspective) just means finding meaningful concentrations and exploiting them–not a big deal–and in fact, you are correct, it is the general principle we also apply to oil field geology. Find it in fields and extract it. Problem is the oil fields we discovering are getting smaller while the bigger fields we’re producing get older by the day. Comparing antimony to hydrocarbon resources shows how off the rocker you truly are, dear sir.
    Note–hydrocarbons are NOT elements, but are forged out of elements during anaerobic processes over geological time. Hydrocarbons are depletable molecules! It is a finite resource, period. Get it together and stop acting like heroin junkies!
    Jeez, even your main man dubya says as much–but at least he’s swindling you out of your money throwing it away at the “solution” of ethanol. But, then again, so are you… arguing straw man with all of us so you can feel “confident” and “sure”, all the while coming across like like the denizens of a cry wolf fairy tale. Techno-fix fantasy, we have lift off. Sure, “Malthusians” were wrong before, for a very long time, but perhaps blind faith has now a very cheap commodity. We need some more critical thinking, especially from the dyed wool over the eye infinite growth, libertarian, corporate, economist camp. I want to reiterate my commendation of Prof H. for pursuing these issues against the clearly obvious displeasure of many of his “readers”.
    Aha, wood! Finally, something worth considering among your sleuth list of strawmen extraordinaire. Of course, trees are *not* “renewable” over the short term. Over a multiple generational time frame than our forests are to a certain extent “renewable”, provided we understand how we are using a replacing the resource. Sadly, we humans don’t understand much (evidenced here most clearly so far by your comment, DickF). Go take a look at E.O. Wilson’s talk over at TED. Go travel to the Amazon. But please don’t tell me about petroleum geology when you no almost nothing about it.
    Of course wood, is essentially the result of nutrients in the air, ground and water plus photosynthesis provided by our local star, the sun. Oil, a resource which is not renewable in any sense–ie, we’d have to wait for a new species to evolve to even come close to refilling reserves, and then that may not ever be enough. So, DickF, what’cha doing for the next 70 to 150 million years?
    Your type of wishful thinking is dangerous–not that you care a twiddle about what I think. That is the degrading nature of having a conversation about our species and it’s actions. Some even refused to admit there is a problem! The more I converse with people, the more I get downtrodden about a work-around. If people can’t even admit up to their problems, it is impossible to try to fix them…

  52. Hsapien

    Hal wrote,
    “That’s the point I and some others are making: there is no evidence that we did in fact exert “our greatest efforts” in increasing US oil production during that time.”
    “Now, I’m not saying that if things had been different we would necessarily have increased U.S. production. Oil supply tends to be relatively inelastic and it’s possible that nothing would have made a difference. But we should be clear that that is an *assumption* unsupported by the historical evidence. In fact we did not try very hard to increase domestic production, despite all the rhetoric. We really can’t know how much difference it would have made.”
    Are you familiar with the work of M King Hubbert? A renown oil geologist who was ridiculed and ostracized for his correct prediction of US oil production peaking in or around 1970 back almost two decades earlier in the late 40s and early 50s. Like I said somewhere else earlier, his early work was published in the journal “Science”.
    Hal, the world is not a bank where you go in with two dimes and a nickel and come out with 2 and half cups of crude oil whenever you want. You have to find the oil you want to produce and fact of the matter is we find less and less oil every year since 1960 (on average) and yet demand and production goes up every year… There is a problem here, someone’s pulling your leg and it isn’t me! There are geological *limits*. There are really *physical* fields below the ground which have oil–I know, hard to believe. These limits and extrapolations have been found to follow trend like bull curve graphs in any industrialized exploitation of these fields. Nothing *was* as cheap and abundant as conventional crude, period. We have spent a little over 100 years producing and consuming oil and profligate rates, planning our lifestyles and economics around ever increasing cheap energy. These plans have been short-sighted and only a vocal minority have been saying so much… It is time for us to get serious and take this issue seriously, because we’re all in the together–each and everyone of use in the “developed” world uses approx 1 billion BTUs per day on ourselves… this is going to radically change in the decades approaching and no one knows how nonsensical Americans (far far more nonsensical than any of the cornucopians one can find here) will respond to the economic and political pressure.
    The first step to a decent discussion is to stop questioning the *reality* of peak oil and think about how to contribute meaningfully to the debate which is just now, all too late, getting started after being stalled since the nation went into paralysis in the 1970s.

  53. Hsapien

    Sorry for all the typos. In a rush–and I’m not proofing like I should, but one egregious error that needs correction is that we all individually use 1 *million* BTUs per day, not billion, as I incorrectly and hurriedly wrote.

  54. Aaron Krowne

    Excellent post, James.

    All I can say is that only the pain of astronomical prices will fix the problem.

    We’ve already passed the point where innovation in extracting oil can bring additional downward price pressures. I think we’re now just past the point where military adventurism can bring the price down.

    Gas is now at a plateau higher than the spike of last year. Next year, it will surely be at a plateau higher than the present one.

    When will the pain start to change habits? I’ll know the tide has turned when half of cars I see on the road are no longer SUVs.

  55. odograph

    I’m surprised that Stuart quotes elasticity to imply future elasticity. I though he and I agreed that there are sometimes tipping points, and new regimes, as we saw with the ’78 to ’82 fall in US gasoline consumption. The ’70 to ’75 elasticity numbers, whatever the were, did not predict that.
    FWIW, I hope for a tipping point, and I hope that everyone with an aligned interest (be it economic, environmental, or geopolitcal) lobbies for one.
    I’d like to see a deflection in the energy consumption curves … related in part perhaps to price, but to other factors as well.

  56. sam

    prof:
    out of 10mil barrels, how much is auto usage and how much others//
    technology exists that can yield upto 200 mpg (electric+IC)
    my oil friends have said that oil panic is bogus..
    oil was ~$20/barrel as late as 2002/03 (your US graph show a gradual deceleration)
    i think liquidity/credit bubble/dollar devaluation has lot to do w/ higher oil prices…
    all assets including oil has gone up as part of largest wealth trasfer from J6p to the oligarchs..
    that it can be done peacefully in a so called democracy is a testament to the ingenuity of the method.

  57. Dan

    The Prof has found a way to up the comments count on his posts :~)

    Several commentors have missed one of the Prof’s major points, being:

    But I say, we really need it right now.

    JDH pointed out that leaders past and present always talk about changing their future, usually well beyond their administration or congress’s discomfort time zone.

    One of the traits of homo sapiens is that of discounting the future, which makes addressing energy and oil issues difficult as the latter obviously takes decades to change meaningfully.

    I’m also suprised that there are people here who want to rely upon hearsay (“my oil friends have said…”) or old wives’ tales, etc. when there is a mountain of data out there and libraries full of discussions on these topics.

    My question to the professor is this: if what we need are solutions now , what indeed can be done today?

  58. JDH

    Dan (and Bartman much earlier today), I intended my words here not as a call for a particular policy, but rather as an invitation to acknowledge that this aspect of peak oil, at least, is not something that is a vague concern about the distant future but instead is a very real and troubling problem in the here and now.

    As for what we should do about it, I am still trying to clarify my own thinking on that subject. But I believe that many of the suggestions raised by reviewers here merit consideration.

  59. Thomas James

    … and another 40% goes to motive power, in particular, motivating US politicians to seize oil assets, aka regime change, aka WMD, aka al-Quaida, aka regional stability, aka aka-flavour-of-the-month.

  60. Valuethinker

    JDH
    Your essay is an excellent example of the ‘Social discount rate’ not equalling the ‘private discount rate’.
    Robert Solow, I believe, wrote a paper about environmentalism pointing out that society is likely to value the future much more highly than individuals (lower social discount rate than private discount rate, therefore higher value for the future).
    For the same reason, society is likely to value reduced energy dependence on Saudi Arabia and Russia much more than individuals do.
    No one thinks of their SUV as a net loss in the War against Terror, but it is.

  61. Rich Berger

    Valuethinker-
    “Society” is an abstraction, individuals are real. “Society” is unable to think or act; individuals and groups of individuals can and do. Statements like “society is likely to value reduced energy dependence…” are just a smokescreen for the author’s point of view, be that you or the esteemed Professor Solow. Friedriech von Hayek has a very enlightening essay on this subject in his “Studies in Philosophy, Politics and Economics”.

  62. odograph

    Rich, I thought Pinker wrote “The Blank Slate” to battle that (liberal?) ideal of human nature. That is that we were born tabula rosa.
    But even given the “conservative” arguments Pinker makes throughout his book, he certainly also builds the case that man is a social creature, and that this is part of his nature.
    I’d love to hear Hayek informed by modern evolutionary neurobiology … but I doubt even without that they he’d deny man’s social nature.
    Shorter: It’s not an abstraction if we’re built that way.

  63. T.R. Elliott

    Rich Berger: I’m sorry, but that tired saying, that society is an abstraction–is an abstraction. And a false one.
    Try this experiment. Raise a child with no surrounding society. None. Zero. Nada. That means no parents either. The child would have no language, no concepts, and in fact, would not survive. Start with a lone individual and you have–nothing.
    The fact that individuals are repositories of aspects of society does not mean society does not exist–or that it is an abstraction. It’s like saying the body is an abstraction, all that exist are cells.

  64. Anonymous

    Hsapien wrote:
    Peat? You’ve got to be joking
    Yes, I am joking. This obsession with peak anything is a joke. We have had peaks with natural resources since we appeared on this planet. The whole idea of economics is how we deal with scarcity. All peak oil says is that oil is a scarce commodity. What commodity is not scarce?
    This joke would be funny if it were not for all those people wanting to waste my tax money by funding their favorite project taxing and regulating resources from those who will solve the problem.

  65. Anonymous

    Oil and gas reserves in Alaska are not trivial, they’re fairly substantial, and do you really think the Hibernia field off the east coast of Canada is the only oil on the entire eastern shelf – a region that is geologically quite similar for thousands of miles? The US could produce substantially more oil, but chooses not to for environmental and other reasons. I worked as a geophysicist in the high arctic, and I’m not disputing the externalities of oil production, or that global peak oil production is probably not that far in the future, but a non-trivial portion of the decline in US oil production is due to environmental policy choice, and that isn’t oil company propaganda. I’m just pointing out some short-comings in this article, not discussing my moral philosophy of life.

  66. rmark

    The politicians all say its a good idea, but none would want to propose the simple gas tax increase needed as an incentive for change. I suspect the future car will be a plug in series electric hybrid, with a range of 2-300 miles, using the existing grid + nuclear power.

  67. T.R. Elliott

    Anonymous said: “This obsession with peak anything is a joke” and “wanting to waste my tax money by funding their favorite project taxing and regulating resources from those who will solve the problem”
    Good example of the way in which the discussion of peak oil often results in strawmen and hyperbolic language. This is one of the problems. People can’t even consider issues like energy consumption or externalities like global warming without extremists trying to shut down the discussion by labeling it an “obsession,” immediately freaking out about regulations and tax policies, without looking at the actual issues that are under discussion.
    Personally, I don’t think “this obsession with peak … is a joke.” At minimum, it’s an investment opportunity. An example of supply and demand. Perhaps Anonymous has selected anonymity because he missed the investment boat on energy.
    Sometimes a good portfoliio is the product of a few “obsessions.”

  68. Hal

    On the question of whether Peak Oil is a problem here and now or in the future, JDH gave a great analysis of this in one of his first articles on the issue:
    http://www.econbrowser.com/archives/2005/07/how_to_talk_to.html
    He pointed out that we are fortunate to have a set of futures markets devoted to oil prices, where traders have an incentive to identify exactly such trends as Peak Oil, take positions to profit from them, and thereby alert the rest of us to these future events. Today, oil trades out as far as December 2015, well into the “Peak Oil Crisis” years according to even the more optimistic Peak Oilers.
    And yet when you look at these long term prices you see no effects from this predicted crisis. Oil can be contracted for delivery in 8+ years for the same price range as for delivery tomorrow. Traders stand ready to make and honor contracts to buy and sell oil for 2015 delivery for $67/bbl. If market insiders really thought oil was going to be in terrible shortage by then, wouldn’t they want to see a substantial price premium rather than promising delivery at today’s prices? The whole picture doesn’t add up.
    Highly liquid, far-seeing futures markets are arguably society’s best tool for getting an accurate picture of future conditions. Unlike most other forums, people are penalized harshly for being wrong and rewarded handsomely for being right. At a minimum we can say that every single Peak Oiler, if he is confident in his predictions, lives in a world where incredible wealth is his for the taking. You can argue that markets are stupid or blind or whatever you want, but you can’t deny that markets are willing to give away millions of dollars to anyone who makes a correct prediction about the future and is willing to back it up with cash.
    The persistent failure of energy futures markets to acknowledge major future shortages, to the great harm and detriment of thousands of knowledgeable insiders if they prove to be wrong, stands to me as one of the strongest pieces of evidence that Peak Oil is not going to play out as the crisis that most fearmongers predict. The future is inherently highly uncertain, and the more confident a Peak Oiler is in his predictions, the more likely he is to be wrong.

  69. odograph

    “Highly liquid, far-seeing futures markets are arguably society’s best tool for getting an accurate picture of future conditions.”
    That’s not what I read in “Fooled by Randomness.”
    What I take away from that book and other sources is that investors (in general) are good at taking an “all things being equal” position.
    That doesn’t mean that all things will be equal, it just means that if they are, that’s the place to be.

  70. DickF

    T.R. wrote:
    Anonymous said: “This obsession with peak anything is a joke” and “wanting to waste my tax money by funding their favorite project taxing and regulating resources from those who will solve the problem”
    Good example of the way in which the discussion of peak oil often results in strawmen and hyperbolic language. This is one of the problems. People can’t even consider issues like energy consumption or externalities like global warming without extremists trying to shut down the discussion by labeling it an “obsession,” immediately freaking out about regulations and tax policies, without looking at the actual issues that are under discussion.
    Sorry T.R. just failed to put in my name. I’m not hiding. I love to take credit for such brilliant posts :-) only in this case, darn it, it didn’t work. Here I go to all the trouble of trying to shut down discussion and you still keep posting. (To quote Foghorn Leghorn, “That’s a joke son, that’s a joke!”)
    Just for the record I do not believe in the omniscience, omnipotence, and omnipresence of the government (though the last two are a close call and getting closer). I would actually rather empower people. They have always solved the economic problems and they always will as long as we can keep government out of the way.

  71. T.R. Elliott

    Hal: My limited look at the energy futures market tells me that its predictive powers are largely the power of the rear view mirror extrapolated forward with minor tweaks for current information that may or may not be useful.
    Your argument is as follows: peak oil is a complex issue. All the experts disagree. Therefore lets take a vote–in the futures market. All those wrong people will vote and come up with a right answer.
    Nonsense.
    I have yet to see a good argument that the futures market is predictive for anything other than the most mundane. JDH has pointed to the futures market for elections and oil–yet I’ve not seen much analysis looking back to tell me how well the predictions went.
    Perhaps I’m mistaken, but futures market did not predict current prices–going back eight years–and there is no reason to think the price in 2015 is anything more than an uneducated guess. If it’s been wrong before, why do point to it again? Can you point to analyze demonstrating its predictive powers? I’d like to read it.

  72. odograph

    “They have always solved the economic problems and they always will as long as we can keep government out of the way.”
    Like we do with ethanol and farm subsidies? Not to mention of course the arcane collection of public land leases, taxes and tax credits the oil industry enjoys …
    You know, I think we might be better off in some ways if the government (this “conservative” government) did stand up and say “you’re on your own.”
    But given that we have a pork riddled version of a _regulated_ market economy, we have to nudge things along as best we can.
    IMO, fantasies of free markets (or of central planning) don’t contribute much.
    Our real trouble is with the mix … corn state subsidies aligning with GM’s good old yellow gas caps.

  73. odograph

    [sorry JDH - I forgot to fill in my name on the first attempt. It's somewhere in your "new poster" queue.]
    “They have always solved the economic problems and they always will as long as we can keep government out of the way.”
    Like we do with ethanol and farm subsidies? Not to mention of course the arcane collection of public land leases, taxes and tax credits the oil industry enjoys …
    You know, I think we might be better off in some ways if the government (this “conservative” government) did stand up and say “you’re on your own.”
    But given that we have a pork riddled version of a _regulated_ market economy, we have to nudge things along as best we can.
    IMO, fantasies of free markets (or of central planning) don’t contribute much.
    Our real trouble is with the mix … corn state subsidies aligning with GM’s good old yellow gas caps. Oh, as other congressmen grandstand about price gouging, of course.

  74. Stuart Staniford

    Hal:
    At risk of sounding like a broken record, you already have seen a very substantial adjustment in the futures markets. 5 year off oil used to be O($20) for many years. Then in the last three or four years, it went to O($60) and bounces around up there. Indeed, futures traders are not idiots, and somehow they have figured out enough to know that the present high prices are not going back down again (like they always did before). Prices are now set (roughly) high enough to keep demand in line with flat (EIA) or close-to-flat (IEA) supply. Apparently, traders expect little or no growth in oil supply over the next five years. I don’t think one can improve much on that viewpoint with present public information.

  75. DickF

    The FED has built in a lot of inflation into the system. The tax cuts and global marketing have kept companies profitable and inflation moderate, but if the FED is successful in creating a recession to prevent inflation we could actually see inflation. Right now business activity is sopping up liquidity. Slow business activity and you will see more liquidity and the manifestation of the inflation.
    What does this have to do with oil? With current inflation in the system it is doubtful that the price of oil will fall back below $40/bbl and will probably stay above $50. The futures markets do not predict the future. They price in the present into current prices. Currently the futures markets say that oil will remain high given the current situation.

  76. Robert Schwartz

    I am honored to have critics like hsapien and dryfly. They make my point for me.

  77. Juan

    lets remember that if success = accurate predictions, the hubbert method has, in most all cases, very nicely failed. Failed, that is, other than assisting in the creation of an expanding number of nearly religious zealots, in whose honor i can do no more than attach the following: http://www.gasresources.net/LynchM%2006%20(Crop%20Circles).pdf
    lets also try to be aware of what is termed globalization and the still applicable reality of effectively anational firms, including major oilcos.
    then as well – taking brad setser’s work to be fairy accurate – the reflux of petrodollars into u.s. treasuries and agencies.
    stuart – thanks for the very nice work re. ghawar but i would not attribute any particular insight into future investment/production/consumption to those who trade paper barrels although the following is a 28 january ’98 investment bankers comment:
    “For all those that fervently believe price movement always reflects fundamental changes in physical markets, the discussion in this paper bears careful reading. Our work strongly suggests that large swings in the funds net position in oil contracts on the NYMEX have driven virtually every significant movement of crude oil since the MG position was unwound in early 1994. The single exception was a brief period in the fall of 1996 when physical tightness in the market itself set the price of oil.” ((Matthew R. Simmons, Is Another MG At Work? (Or, What is Driving Down the Price of Oil?))
    to which must also, especially over the last years, be added the extremely large increase in financial flows into commodity ctas, funds – with long-only entering en masse from ’04 – funds of funds, etc.
    by total amount these have set record after record.
    then we should take account of changes, loosening, in regs, e.g. the cfma of 2000.
    then also the development of global electronic trading platforms, the very evident ‘easy money’ of this same period…
    in short, it is erroneous to assume that high priced crude is a consequence of physical shortage even though there has been no shortage of ‘what ifs’ to help justify the run.

  78. Jim Glass

    “One unavoidable implication of the dual realities that U.S. oil production keeps falling and U.S. oil consumption keeps rising…”
    Well, things aren’t entirely all *that* bad. For one thing, consumption of oil has been falling, not rising, in GDP terms, which would seem to be what counts.
    Since 1973 oil consumption per dollar of GDP is down 57%. So economic dependence on oil has been cut by more than half. That’s not good?
    Even with 2006’s extraordinary price rises, the total dollar cost of oil used in the economy in 2006 was only half that of the early 1980s, in % of GDP terms.
    And even with the fall of US production, and the rise of imports in the percentage of total supplies, barrels of imported oil per dollar of GDP are down 15% since 1973.
    Among imports, the Persian Gulf supplies only about 15% and over the last dozen years imports from the Gulf have declined about 10% in GDP terms. Our biggest and fastest growing supplier is Canada, with Mexico #2.
    Total oil consumption per $ of GDP has been falling on a long-term trend of almost 2% a year — that’s not some sort “good thing” worth noting? — and that’s sure to continue off of recent high prices.
    Oil consumption per capita in the population is also down about 20% since 1973 — so individuals are literally using less oil per head in spite of how much income per capital they’ve gained in 30+ years.
    Yet for some reason all the talk in the press is always as if the US actually is using “more and more” oil, when it’s really been using less and less, even if not at a rate of decline as fast as some people would like to see.
    No, I don’t like shipping US wealth to the Mid-East for oil — but we’re not shipping so much there. In paying for oil we’re shipping about four times more wealth to non-OPEC countries than to the Persian Gulf, mainly to Canada and Mexico, which aren’t so far from home or such security threats.
    The problems that a lot of people mention with the oil situation are real enough. But even so, we should present an accurate picture, and in fact the US economy is a lot less dependent on oil than it used to be.
    It’s less than half as dependent now as when this issue first came up in the 1970s, and still declining.

  79. Stuart Staniford

    “The problems that a lot of people mention with the oil situation are real enough. But even so, we should present an accurate picture, and in fact the US economy is a lot less dependent on oil than it used to be.”
    This is simply inaccurate and reflects a complete misunderstanding of the physical role energy plays in the economy (albeit a seemingly common misunderstanding amongst economists). It’s certainly true that we get more GDP per barrel/joule than we used to, but this should be conceptualized as more efficient use of oil/energy, not as being less dependent on it. We still require energy for every single economically significant act, and to the extent we have less energy, we will do fewer economically beneficial things.
    In fact we are more dependent on it, as the trend in the elasticity to getting more inelastic over time makes clear. Eg for oil, the natural unit of vulnerability is “one country’s worth of oil supply”. Ie if there is a revolution/war/whatever that takes out your favorite oil supplier’s production for some period, then a fixed percentage of supply disappears. Since price elasticity of demand has been decreasing, the price impact of that fixed percentage will be much greater than the same event would have been twenty or thirty years ago, as will be the corresponding impact on the economy.

  80. Hsapien

    Robert,
    How dare you associate me with dryfly. For all I know, he is a sockpuppet you invented to make me look bad. Alas, I don’t think you’re *that* delusional, but close.
    Certainly got a boatload of cornucopian, Cato Institute, AEI, freeper-like cronies swashbuckling around this comment section. But that goes without saying, we humans are a confident and arrogant bunch. Plus, we want jesus to really love us!
    It’s all in the damn timing, and no one knows–don’t you realize that? Nativist thinking is the greatest obstacle to change and REAL growth. Real growth is not a big, sprawling network of highways surrounding strip malls and cookie cutter houses that we seem all to willing to finance with the blood of young Americans in illegal wars abroad. Sorry, but being tacitly accused of antisemitism really pisses me off.
    __________
    Jim Glass writes,
    “Well, things aren’t entirely all *that* bad. For one thing, consumption of oil has been falling, not rising, in GDP terms, which would seem to be what counts.”
    Well you discount the fact that relatively high amounts of energy intense industrial work has gone over to to Asia and India through the magic comparative advantage and the invisible hand. Ask yourself. where is the extra demand coming from? Everyone never fails to not take this into account, especially dyed-in-the-wool economists, who are always skewed towards the disposition for cornucopian optimism, total efficiency, the march of progress through free-interprise, individual responsibility, blah blah blah.
    As for Michael Lynch? *Guffaw* He is an embarrassment to my intelligence. A second rate hack, suckling off the ‘teat of the cheap oil bonanza, as they say… or should I say said? His predictions are about as good as Daniel Yergin’s, these days, last time I checked…
    Keep your Bloomberg pages refreshed!

  81. Rich Berger

    Stuart-
    I think your last post illustrates just how little you understand market reactions to oil prices. The price of oil rises in real terms from less than $20 per bbl in the early 70’s to $60+ and the economy uses less than 1/2 of the amount of oil per $ of GDP and that fact is completely lost on you. The market economizes on the use of scarce resources and this is exactly how any increase in the scarcity of oil will be handled in the future.

  82. Hsapien

    Dr. Berger,
    I’m guessing market reactions are not going to be “economizing” in the vernacular of most Americans! But when you put it into crypto-tomfoolery like that, you almost had me convinced if only I could see the twinkle in your eye as you sat typing, imagining the ideal Hayekian “rational” market triumphing over human greed, oversight, stupidity and a salt water vat of neurons. Although, that’s how it will probably sound to people such as yourself, corporate apologists. You’re almost religious about it. When one is a propagandist one really has to have it in his bones, has to really *believe*. Good for you. I hope you’re happy with your faith.
    I’m comfortable being agnostic of when peak is–at least I’ll admit it exists, and that looking at how it has influenced foreign policy and economic “development”, we certainly have a few things that we may have overlooked–that’s the oversight part. As many have said, “you only know in the rear view mirror”–years of waiting will tell. However, I’m stunned to converse with dyed-in-the-wool attitudes towards energy, people who really believe things without any good reason. You trust the Saudis? Why would you trust someone who doesn’t allow an audit? Sounds fishy to me, very Enronesque with a little fundamentalism thrown in for shits and giggles. For instance, people that flat out deny that peak production does occur must admit that at least it occurs in oil fields, and therefore it follows in collections of them, hence countries, and alas, yes, the world, reductio ad absurdum. What the hell? It is simply amazing that people deny that peak oil is a reality, and no one knows the “below the ground” situation–but, we sure as *#@$ know the “above ground situation” and that is definitely not going so smoothly… To say the least! It seems to me policy is being made *today* because of “peakoil”–at least in regard to the end of “cheap energy” as the professor here writes. 2/3rds of the remaining, easily accessible, extremely cheap oil is in OPEC countries. The Gulf is the heart of OPEC, we have setup a police station there. Iraq is a war that consists of trying to police a country of people who have been wanting to kill each other for a long time–Saddam was the ruthless force that we initially supported, a secular tyrant that he created a roaring pot of misery and psychopathy which has been unleashed by the “preemptive” neoconservatives. This was all known as we went in, by all the administration officials, and obviously the intelligence community–who tried to sabotage the war effort. Claims of an “easy” war were simply window dressing to make an unappetizing war that the military had already passed up in the early 90s (Powell Doctrine) and now were forced to begrudgingly “swallow” for their uncontrollably sprawling borg-like country. Either way, I am in slight agreement with the neocons (in a purely analytic sense) that eventually something just as bad would have occurred under different circumstances if the neocons had not been given the Iraq Green Card on 9/11/01 to start phases of wheels in motion to eventually enter into Iraq and topple Saddam and try to reshape the country in the image of a “democratic society” that somehow goes along with the US–a mystery to those informed on the fact that Iraq is comprised of a majority of Shiite muslims. This is versus Saddam’s secular baathist party and brutal military, predominantly sunni most of whom, rank-and-file, were fired by the brilliant statesman/viceroy Paul Bremer. Another hotshot mindless business guy in a suit.
    Hence, I am astounded by you, Dr. Berger… Here we have a war being waged in a country that probably has the biggest oil reserves in the world after saudi, and is certainly the least developed since that poontang-hound, sly redneck bastard Clinton starved the country and severely hindered any development throughout the 90s. Before that the Tanker war crippled Iraq’s economy, no development in the 80s. Iraq has a lot of potential, oil development-wise. That is, if IEDs, AK-47s, rocket launchers and suicide bombers weren’t killing and maiming everyone in sight (that includes women and children and US forces, not just *zombie fog* “the terrorists”).
    Again, Dr. Berger, you sit here and write to me that “oh, humbug, this oil thing, giant wussies crying wolf again just a big ruse–really not so big of a deal since energy is just measured in dollars per joule and as long as you’ve got enough dollars moving in a stream in the right directions that will spur innovation, and a magical replacement for a liquid made up of tens of millions of years of condensed solar energy will be found! Just watch and wait that staggering rate of 80 million barrels per day is nothing compared to the sluggishly creative process we call consciousness… Just *believe* that through a rigorous motivation of various economic vital forces we will reach a tractable solution in short time.”
    I’d rather believe oil geologists when it comes to oil geology and economists when it comes to economics. Lunkily enough for me, I just gained one economist in my camp, and any economists in my camp (see, nativism strikes again!) is a “good economist”, because he or she is not living in a bubble of intrinsic-value-fantasy-land. One reason that people are afraid to admit to profligate unsustainable energy use is very clear: we all benefit from it, we’ve got it and certainly like it, perhaps even *love* it is not to strong–just like children, and therefore we have built in psychological–not ot even mention the ideological ones which are pounded into our heads–mechanisms that protect against any type of freethinking and willingness to understand our future. Everything is next quart, or the at very most next four quarters. That’s not the only problem with the “peak oil” message, though. Not only have so many people been wrong in the past (at least since oil was found–people had rapture before that–what am I saying, they *still* do!) but there is also a myriad of ways to falsely associate “peakoil” with anything that seems “bad” to ones identity… So you see liberals denying peakoil, like Greg Palast directly and George Monbiot indirectly–the later because of pure idiotic research the later because of liberal politics and focus-groups saying GM is a more “positive message”. Fact is the Donkeys have decided to go along with the science, which “might” be right, and use that issue as a cover for oil depletion while the Elephants have more intelligently settled on the convenient “Global War on Terror” against, surprise-surprise, their old bedfellows of the 1980s “Al Qaeda”.
    On a closing note, I’d love to here your apology for Iraq. Go ahead, give it a shot…

  83. Rich Berger

    TR –
    I am not surprised that those MIT guys are puzzled. It seems that they took a very simple fact and tried to avoid the obvious explanation – the market looks for substitutes when an input gets more expensive. Figure 1 says it all – price goes up, use goes down.

  84. T.R. Elliott

    Rich: I was going to point out that Figure 1 screamed pretty loudly to me that the two events were correlated. I forgot to mention it. Thanks for pointing it out.

  85. Rich Berger

    TR-
    I don’t mean to be automatically dismissive of the MIT paper, but it seemed to me that they were trying to analyze the results by using a very complicated econometric model and were getting lost in its complexities. In general, I am skeptical of econometrics and macroeconomics because of the difficulty of modeling a thing with some many moving parts and intelligent agents to boot.

  86. Juan

    hsapien(?)
    rather than the moreless typical peaker response, please fully address what m. lynch had to say in ‘crop circles…’.
    to my knowledge he has never claimed that there would be no peak but only that it cannot be predicted, which obviously flys in the face of all those who have, over and over, made such predictions and seen them fail.
    other hand, if you want to say that ‘peaker’ ideology conforms to a systemic need to once and for all move beyond what, decades ago, came to be called ‘fordism’, i would agree but think it trivial as the capital system’s need for a new social structure of accumulation has been evident since even the later 1960s when we heard such terms as ‘social industrial complex’.
    btw, the issue of pricing, the financialization of price, is not attributable to lynch but others such as simmons, mabro, etc.

  87. Stuart Staniford

    RichF wrote: “I think your last post illustrates just how little you understand market reactions to oil prices. The price of oil rises in real terms from less than $20 per bbl in the early 70’s to $60+ and the economy uses less than 1/2 of the amount of oil per $ of GDP and that fact is completely lost on you.”
    I completely agree that the market will respond, slowly, to high prices by becoming more efficient in the use of oil. It has done so in the past, and it will do so more in the future (hopefully with considerably more alacrity than it’s displaying so far).
    What is not true is that we thereby become less vulnerable to short-term supply disruptions. This is the important distinction.
    Think of it this way – suppose you commute 50 miles to work. Gas becoming more expensive, you trade in your Explorer for a Prius. You can now generate the same income with one third the gas. Excellent. Now there is a gasoline shortage that causes your local gas stations to run out of gas. Can you get to work any better in the Prius than in the Explorer when it doesn’t have gas? Clearly not, right?
    Now take that principle writ large. If a nation of Prius drivers faces a 6% of supply oil shock, it is in exactly the same situation as a nation of Explorer drivers facing a 6% of the (much larger) supply in that situation. In either case, 6% of miles will not be driven, and whatever economic activity required them will not be occurring.
    And the point is that geopolitical oil shocks come in natural increments of a certain percentage of supply (set by the fraction of global production coming from each potentially unreliable producer).
    And you do get the significance of price elasticity going from -1/3 in the 1970s to -1/20 now, right? (And yes, Odo, I realize the whole elasticity model is a rough approximation, but it’s not a useless one).

  88. Executive_Hsapien

    Juan,
    Sorry to be so dismissive… But to repeat myself yet again, I simply view Lynch as an apologist for cheap energy, and certainly a very poor apologist for cornucopian fantasies, and the corporatist ideology of profits make anything possible. He is the tree trunk stuck in the collective eye of most of America. Many here seem to be under his spell, not a surprise amongst people purportedly educated in “economics”.
    Sure, I’ll be the first to acknowledge, and know from first hand looking-into-the-matter, that many of the early predictions of the early “peakers” were obviously extremely wrong–global oil production has admittedly been going up for the last 30 years… No one is debating that. But, that is a long time to be on the “losing” side of a cultural argument, and the tide doesn’t turn quickly against such deep indoctrination, especially when your society has consisted for multiple generations growing up on “freedom” of driving whenever wherever, and developers building with that framework in mind–for now almost greater than 60 years! And don’t forget what your local economist will tell you, these are 60 years of the biggest, most sustained industrial growth in the history of the world (since, well heck, industrialism needs apes evolutionized out of primordial goo, as Tom Delay has eloquently put it, in order to get all the creative technology and exploitation and development needed. The T-rex definitely did not read the paper, but certainly loved to fornicate, Camus should have noted.
    I’m not saying the “science” of petroleum geology is close to as precise as, say, nuclear science. And that is because what we are dealing with are immense geological structures with complicated arrangements and densities–moveover, though, is that the reserve numbers are inherently unreliable and political and cannot be trusted.
    All Colin Campbell et al are saying through their “predictions” is that no one knows when peak is because of these features of the human reality above, and below the ground! Lynch, like a cunning little weasel, successfully uses the following to “win” arguments:
    1. Paul R. Ehrlich was dead wrong. Great, wonderful technology we got better at extracting oil and therefore we increased our theoretical “tappable” reserves by horizontal drilling and deep water plus drilling in rough and tougher regions.
    2. Bad resource economics. See Julian Lincoln Simon bet, green revolution and my correct predictions throughout the 80s–partially because technology was good at playing a catch-up game and depleting the North Sea very quickly–but also because in general the economics in Western societies did achieve steady growth in the 1980s, and a surge in the cheap oil 90s… All these things just point to how devastating the ideological attack has been from the cornucopian camp against the “humanist-realist-existentialist-liberal-environmentalist-doomsayer” strawmen, as of since the end of WWII which a few hiccups in the 1970s but thank god at least a democrat was in there somewhere to take the heat–aside from the one that had had his head blown off, I’m talking the god living peanut farmer glowy eyed Jimmy, someone to blame and to quickly get Morning in America going and Peggy Noonan writing speeches for a geriatric actor out of his prime, get the Saudis really priming up to pumping:
    http://www.eia.doe.gov/emeu/cabs/images/saudioil.jpg
    3. Neo-Malthusians try to tuck the badge of Science under them, but they are not in fact scientists in the precise definition of the word. Their predictions are guesses on the unguessable. I’m optimistic, and faithful in the market, you’ve been wrong before you’re wrong now. ditto, ditto on and on…
    fin.
    Note Lynch fails to take into account, like all propagandists, who actually believe what they say–that’s what makes them so great, that M King Hubbert accurately predicted the US peak with solid, reliable data that was available to him at the time through the major US oil companies’ statistics when he was at Shell. All the “doomsaying peakers” are saying from the top down to a greater or less degree, and this is especially true with Colin Campbell, who receives to most vitriolic repulsion from the “economists” for being “wrong”, is the *fact* that no one knows when it will be, but we can no it will be soon. Mexico is in steep decline, without much prospects as Cantarell falls. Burgen has entered a steady descent, Kuwait has public admitted. Ghawar is starting to look shaky, and the major fields in Saudi have been going now for 50 years. The list of countries we are dependent on does not look uplifting:
    http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html
    But it surely does seems a lot of important and self-interested people want everyone *not* to know, be totally ignorant and atomized mindless “consumers” spurring growth on so Joe-sixpack and working-9-to-5-Sam can get a little increase in their portfolio and drive further innovation…. . Noticed that the critics aren’t even oil geologists. Like I’ve stated a dozen times now they’re mostly pro-endless cancerous growth economist types who skew towards libertarian AEI-like ideological corporatism with intense confidence in technology and human individual Randian essence or fairy dust, and whatnot. But most of all, these people, like all delusional thinking, really hinge on a type of technological “faith”, almost like little kids with science fiction comics…
    The science of geology on a whole is well established and is indeed a major keystone science, in evolutionary biology, radiometric dating, paleontology. On the more lax scientific front the list is endless–plate tectonics, mining, ocean research, etc etc… Interestingly the first solid ground gained in geology was during Darwin’s time, particularly as a relation to life and rates of change, ironically enough.]
    Sorry, Lynch is a joke–as much as a joke as the federal government.
    I really don’t care to enter into a debate about “Lynchian energy economics”, it would be like debating Phillip E. Johnson on God–but if that tickles your fantasy you are welcome to it, I’ve got better fish to fry. Read up on Lynch all day, have at it.

  89. Juan

    i’ve no need to ‘read up on lynch all day’ since i’ve kept up with his publications, just as i’ve tried to keep up with those on the peak oil side, and others.
    my points were clear enough and, as has happened in the past, the answer to the first is the same, just as faith based as that which you claim lynch to have, while the second was simply ignored or not understood.
    as it goes, we agree that no one in fact knows but there is more than enough belief…

  90. JustZisGuy

    Your slander of Ahmadinejad is ridiculous. It’s astounding that no one has called you on it yet. Show me some proof that “Mahmoud Ahmadinejad has declared he’d sacrifice half of Iran for the sake of wiping out Israel”. The referenced article is not proof:

    Iranian President Mahmoud Ahmadinejad, if he ever became the supreme decision maker in his country, would “sacrifice half of Iran for the sake of eliminating Israel,” Giora Eiland, Israel’s former national security adviser, told The Jerusalem Post on Thursday.

    (My boldface)

    Nice propaganda. Are you aware of the difference between quoting a person, and quoting someone commenting on that person?

    Show me the original quote, and the opinion of at least three or four translators on the proper English translation of what Ahmadinejad actually said. From what I have heard the reference was to wiping Israel – the political entity – off the map. If the quote was a call to genocide then why are there no other quotes regarding this extreme position? I am willing to be proven incorrect: show me.

    Until you can provide some proof, I will have to report that you have declared you will strangle and eat one kitten each day you are not given one million dollars. Why? Because I just said it. It’s a direct quote! You have declared your antipathy to kittens!

  91. JDH

    JustZisGuy, thank you for calling my attention to this error. I was going by my recollection of what other people had said, rather than checking carefully the details of the story itself.

Comments are closed.