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Page added on April 7, 2014
Peak Oil: Ignoring Other Considerations
Gail Tverberg shares some of the most insightful observations about the connection between economic growth and energy. In an article posted at her website several weeks, she raised issues which are too often shunted aside in the primary debate of “not enough” versus “all we need” fossil fuel supplies in the years to come. They’re too important to continuously skip past.
I’d like to focus on just a couple of the (as usual) excellent points she raised.
We do not have an alternate fuel supply that will allow the economy to continue to grow, regardless of fossil fuel consumption. The published reserves include large amounts of oil in the ground that are not of the very cheap to extract type. Extracting such oil will be impossible if oil prices are very low, or if credit availability is lacking. It is tempting for observers to look at oil reserves and assume that all is well, but this is definitely not the case….
Likewise, substitution is possible among energy products, if it is possible to overcome the many hurdles involved in doing this. There are two cost hurdles: the higher ongoing cost of the substitute and the transition cost. The transition cost gets to be very high if there are a lot of ‘sunk costs’ that are lost–for example, if citizens are forced to quickly change from gasoline powered cars to electric cars, so that the resale value of their gasoline powered cars drops precipitously. There is also a technology hurdle: we need to have the technology to enable using the different energy source.
As I’ve noted in dozens of my own posts, and as others have likewise pointed out, the Happy Talk from the fossil fuel industry “all is well” crowd likes to point out the “vast” and “abundant” reserves identified on a routine basis. It’s assumed that this becomes the definitive and official Rebuttal to the doom-and-gloom scenarios offered by those of us who are quite certain that “all is well” is an analysis limited only to the industry’s bottom line.
What the cheerleaders just as routinely neglect to mention is anything about how (or even if) oil producers deliver the reserves from there to your gas tank. Gail goes a step further by linking not just the necessity of high prices to support oil exploration and production of the more expensive and difficult-to-extract shale and deep-water reserves now relied upon. She also points out the significant credit and debt issues which industry executives and their investors are now paying much closer attention to.
Steve Kopits [see this and this] has been another leading voice in explaining the problems surrounding future capital expenditures. Too often now, and for too many oil producers and their investors, the narrowing profit margins do not justify continuing exploration and production. Guess who else won’t enjoy the results?
Gail also takes note of an unpleasant reality tied to both continuing investments in fossil fuel production rather than alternative/renewable energy sources, and what must be addressed whenever and however the transition away from fossil fuel reliance takes place.
Can any of us even begin to imagine what would be involved in re-casting our entire infrastructure to accommodate and respond to energy supplies which are not fossil-fuel based or derived? (This of course presumes that we would first be able to devote the resources to design, engineer, develop, manufacture, transport, test, supply, and replace seamlessly everything in our society currently dependent in one form or another on the affordable and extremely energy-efficient fossil fuels we’ve all relied upon for a century-plus. Piece of cake, right?)
What would we in fact do with gasoline-powered products, for example? How quickly might our major regional areas effectively embrace, enhance and expand mass transit to meet the needs of tens of millions of us? (Quite the “for example” isn’t it?)
Let’s not forget that our elected officials—one party much more so than the other—sees little or no reason to expand investments in science and research, or public transportation, or government involvement in anything at all. That may play well to minority of supporters seemingly incapable of envisioning life beyond next week, but for the rest—their supporters, too—shortsightedness will exact a very high cost.
So while we may not even come close to being able to imagine what that kind of transition entails, we ought to start soon.
4 Comments on "Peak Oil: Ignoring Other Considerations"
Davy, Hermann, MO on Mon, 7th Apr 2014 1:41 pm
ARTICLE SAID – There are two cost hurdles: the higher ongoing cost of the substitute and the transition cost. The transition cost gets to be very high if there are a lot of ‘sunk costs’ that are lost–for example, if citizens are forced to quickly change from gasoline powered cars to electric cars, so that the resale value of their gasoline powered cars drops precipitously. There is also a technology hurdle: we need to have the technology to enable using the different energy source.
When a complex interconnect global society at the limits of growth in a situation of diminishing returns with a population in overshoot to carrying capacity “AND” this global supporting all local support structures then we understand that we are “BROKE”
1.
having completely run out of money.
“many farmers went broke”
synonyms: penniless, moneyless, bankrupt, insolvent, ruined, down-and-out, without a penny to one’s name, without a cent, without one red cent, without two pennies to rub together; More
There are those who believe in hopium and are cornucopian that fail to understand the costs of maintaining a status quo BAU. In an alternative infinite reality possibilities in the quantum theory well it is possible to transition to a different world. Globalism is insolvent without cheap fossil fuels. So in a nut shell in the mid-seventies when we were still endowed with a significant amount of cheap easy to get FF we blew it on a false dream. For you PPI’s here that dream was the American dream but not only American but an adapted American dream to a globalism of the old American dream through democracy, capitalism, and development. A dream aspired to by even the poorest. Not all bought into this dream but enough to squander the last reaming endowment of cheap energy that would have made possible a transition to a more sustainable modern man. Even this transition would not have been the 1000 year golden age but it would have bought us decades instead of what we have left now of maybe 10 years or less. You are not going to get much acceptance of reality today except by some intellectuals who study the numbers. We know the limits, predicaments, diminishing returns, instabilities, degradations, and overshoot. An unstable financial system followed by the energy trap, and a night cap of AGW. Our squander was suburbia, more complexity, more interconnectedness, more comparative advantage, more far-flung distribution, just-in-time efficiencies, consumerism, excessive food choices, population growth promotions, militarism and war. When you shoot your wad and shit in your nest you are a bum on the tracks to nowhere. We are a people that will be forced to face less with less in a system that financially requires more with more. If there is a more glaring inconsistency, unsustainability, and societal predicament then that tell me folks. What is scarier is there are few plan B mitigation and adaptation programs, plans, and or trends. Those plan B’s present today are nothing more than life boats for a few. We see the top still addicted to the great game of nationalism and competition. Class warfare is soon to break out over gross wealth transfer and inequalities. I could go on and on but I have hit my discussion board limit.
Davy, Hermann, MO on Mon, 7th Apr 2014 1:54 pm
http://www.zerohedge.com/news/2014-04-07/and-next-big-thing-degrowth
Good follow up
shortonoil on Mon, 7th Apr 2014 2:18 pm
Gail’s point is well taken, and undoubtedly correct. The connection between economic growth, and energy is pervasive. Energy is just as essential for economic activity to occur as labor, or capital. You can not do anything without them (see graph# 12 at our site). For the last century the relationship between the energy delivered from petroleum, and the economy has had a very special significance (see graph# 25 at our site). Petroleum has been the dominate energy provider used to power the world economy.
At this point, however, a strictly economic analysis breaks down. It fails to incorporate all costs associated with energy production. The cost of petroleum, for example, is usually determined by its price at Cushing, OK, or the perhaps the price quoted for Brent. It is assumed that the petroleum industry, and their customers directly bear all the cost of production. A cursory evaluation shows that this is obviously not the case. Roads must be constructed, and maintained. Navel activity is needed to protect sea lanes, harbors and ports, and a vast assortment of regulatory agencies are needed to oversee, and monitor the flow of petroleum. There is a huge societal cost associated with the production of petroleum that is not reflected in its market price.
In our report we state that for 2012:
“In the United States – federal, state and local governments, along with some private organizations annually invest $2.1 trillion to protect, manage and regulate the flow of petroleum.”
Until 2006 the balance between societal costs, and direct consumer cost stayed fairly balanced. After the Peak in conventional crude production that relationship began to shift more to the societal sector. We can see this in the interest rate subsidy needed to produce shale, the impact on water usage by the industry needed for its operations, and the yet undetermined environmental degeneration that is occurring as a result of shale production. We also see this effect in the increased competitiveness occurring between the world’s petroleum producers through overt acts of aggression. It is most obvious in the out of control, and spirally world debt.
Our report provides an analytical methodology for determining what the magnitude of that cost shift entails, and how it will continue to change in the future.
http://www.thehillsgroup.org
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andya on Mon, 7th Apr 2014 8:21 pm
Well I’d rather be in a lifeboat, then on the titanic. In the face of abundant denial it’s the only rational approach. The ship has hit a berg, trying to repair the hole or build a new ship are a waste of time.