Peak Oil is You
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Page added on April 21, 2014
Peak Oil is Here
Discussions I’ve seen of peak oil focus upon it as an issue in geology: how many years until production begins to decline [name your fossil fuel]. As an economist, however, that’s irrelevant, reflecting a misperception that underlies the 1980 Simon – Ehrlich bet. In an economy, there are many margins of adjustment. As a starting point what matters is rather the time path of real prices. Since this blog focuses on the auto industry, the second margin is fuel efficiency of vehicles. I won’t get to the second piece for several paragraphs, and then only briefly.
The market price of a depletable resource need not follow any particular time path – many (silicon) are abundant beyond any likely need, and so the price reflects the costs of extraction and short-run shifts in demand and installed (extractive) capacity. Over time, however, we’ve extracted the most readily accesible reserves of petroleum, and “scarce” or not, price will rise. (Likewise, we’re seeing an increase in demand, given the success of East and Southeast Asia – and above all China – in lifting much of their populations out of the grimmest sort of poverty.
The early years of the industry saw many technical improvements in extracting petroleum and refining and transporting it as gasoline. Combined with discoveries in the Persian Gulf, prices were relatively stable (and low) from the end of World War II (1946) through the early 2000s, albeit with a spike around 1981. Indeed, in the 1990s energy prices were at their lowest in human history, as per an earlier blog post, “Are Gas Prices High?,” particularly if we take into account the rise in real (US) incomes.
On impulse I looked at prices for the first time in three years. As a devil’s advocate let me suggest that we are now seeing peak oil, with prices rising and (my hypothesis) not falling here on out. Here are 3 graphs. First, here are import prices of petroleum in 3 large economies. Now my first caveat is that to Germany and Japan what matters is the price in (respectively) the Euro and the Yen, but during this time frame forex rates have not swung by even two-fold. Looking at post-1949 domestic U.S. prices gives the same story; as per the first graph, I’ve shaded in the 1990s to emphasize that prices were below the post-WWII trend through 2000, and significantly below the post-war trend when extended through early 2014.
But as an economist peak oil is about price trends, not levels. So for the final graph I calculated the price trend over 1976-2000 and compared it with the trend over 2001-2014 (I truncated the trends berlow where they intersect). In the first period, prices fell at 6.3¢ per year; in the second, they rose at an annual 15.4¢ rate. Now many things could affect this. In the short run, the Chinese economy may see a recession. The timing of when new production comes online is potentially lumpy, and can depress prices until global growth catches up. In the longer run, high prices encourage the development of alternatives; natural gas in the next decade, solar power thereafter. In other words, this is informal analysis, and is not embedded in a model that spells out alternatives in terms of rates of change on the demand and the supply side.
For the auto industry, there are several margins of adjustment. First, there’s an improvement in fuel efficiency; my ’88 Chevy pickup is lucky to get 10 mpg, my Chevy Cruze gets 35 mpg running up (and down) hills to get into town, and over a 25 mil stretch of highway driving I’ve peaked at 50 mpg. So in the short-run I’ve been able to offset the rise in prices at the pump – until I need to haul a load 
of rock dust. But if the trend continues, then the next 3 years will see prices up by roughly a half dollar, or about 14%. As a PACE judge the technologies I see suppliers bringing to market suggest that the industry can offset that magnitude of price increases for another decade. Thereafter alternative fuels and shifting driving habits provide additional margins of adjustment – in the normal week neither my wife nor I drive more than 75 miles in a day, well within electric vehicle range. My old house sits 50 feet from the regional natural gas pipeline. While not yet fully cost competitive (and then there’s the base vs peak load issue), solar power is not a depletable resource, and natural gas is depletable, further from “peak” (and potentially renewable as a biofuel).
The underlying issue is the extent to which the industry should place bets of future high petroleum prices. Public policy, particularly in Europe, has already decided that. Whether (or rather at what rate) we will buy such vehicles – and adjust our driving habits – will be a function of prices. From the industry’s perspective I am however not particularly worried about our running out of oil, even while believing that we’re seeing peak oil.
34 Comments on "Peak Oil is Here"
Plantagenet on Mon, 21st Apr 2014 10:22 pm
Good to hear that economists are starting to accept the idea of Peak Oil.
rockman on Mon, 21st Apr 2014 11:44 pm
P – Yes indeed. And it wasn’t too difficult for him to make the leap because he didn’t focus on production volumes, plateaus, etc. He focused on prices. He might have zoned in on gasoline prices but he could have just as well used oil prices.
And he makes a valid point about those prices driving fuel economy. But while the US does suck down a lot of motor fuel the price of oil reverberates in many other areas. No matter how fuel efficient vehicles become we will still be a vehicle centric society for a long time IMHO. We may be getting more mpg but consumption will still be controlled by costs.
And that gets back to the point we discussed before: the huge increase in wealth transfer we’ve seen in the last 10 years from all aspects of the economy to the oil/NG/coal producers. In the last ten years I’ve estimated the global economies have transferred about $5 trillion MORE just for oil then if prices had remained stable.
And that should be an eye opener for any economist looking at the macro side of the ledger. From that perspective PO should be as real and serious as a heart attack to any economist IMHO.
Arthur on Tue, 22nd Apr 2014 12:35 am
An average five seater car consumes 75 kw and drives 65 mph.
Here is an alternative that lets you drive 50 mph at 3 kw power consumption:
http://deepresource.wordpress.com/2014/04/18/erockit/
The second video is spectacular, where the bicycle overtakes cars with breathtaking speed and acceleration.
Mass car ownership will go soon and replaced with solutions like these.
Meld on Tue, 22nd Apr 2014 2:51 am
I hope you own all theses technologies Arthur. I imagine your home covered in solar panels and wind turbines. An electric car in the garage, veg plot in the back supplying all your food?
peterjames on Tue, 22nd Apr 2014 3:43 am
Arthur, I didnt see the bike with the trailer on the back, carrying 4 tonnes of bitumen to fill the pot holes. I didnt see the paramedic driving the bike with trailer to allow him to transport a bike rider to hospital after he came off the bike, after hitting a pot hole. I didnt see the bike transporting 10 tonnes of groceries to the supermarket to feed all the bike riders. Its a toy, not a solution.
Arthur on Tue, 22nd Apr 2014 3:52 am
Meld, obviously don’t own these technologies, instead I own a Audi 70 mpg diesel car, solar panels will be on my roof this year (capacity 3000 kwh/year) and I am recovering from severe muscle stress after digging out my complete 100 m2 back yard and planting potatoes, onions, beets, cabbage, carrots and others.
On my todo list are:
– a A+++ label freezer to store 300 liter food (mainly vegetables) for max. a year at 180 kwh/year energy cost (from solar panels)
– floor heating system with heat-pump and backyard serving as the cold side
– A glass house or greenery attached to my house
– garden wall covered with thermal heat pipe system for hot water and heating. These tubes based on heat pipes were developed 35 years ago by Philips electronics in my home town, but came too early. Now the Chinese produce them very cheap. Put one of those in the full sun: the hot end can get 200 degrees celcius/(400 F):
http://i00.i.aliimg.com/photo/v0/346199606/SC_24_copper_heat_pipe_pressurized_solar.jpg
Arthur on Tue, 22nd Apr 2014 3:58 am
peterjames, most people use cars to commute or drive to family. Don’t know about the US, but here in the Netherlands traffic jams consists of 5 seater cars occupied with one person, the driver and no one has 4 tons of bitumen or is carrying wounded persons, although perhaps 1 in 100,000 do.
It is not a toy, but a solution for an average commuting distance of 2 * 14 km a day, like is the case in the Netherlands:
http://www.nu.nl/economie/2894647/nederlander-woont-gemiddeld-14-km-van-werk.html
MSN Fanboy on Tue, 22nd Apr 2014 4:19 am
Exactly Arthur: Substitution. ALL our fossil fuel base will be transformed to renewable tech around the globe. We must meet non renewable with renewable, unsustainable with sustainable.
Free market capitalism ensures this. All we require is higher and higher prices to force consumers to switch. To cycle more etc… As we see in Europe, twice the price of gasoline and we are still here = A push for renewable tech across Europe.
Just look at Greece as the poster child for renewables, the price of heating goes up + no one has a job = Deforestation. A renewable source of energy.
We see this behaviour across the globe: A transition to a sustainable economy, just like Me and Arthur agree on.
Davy, Hermann, MO on Tue, 22nd Apr 2014 5:03 am
ARTHUR SAID – Audi 70 mpg diesel car
I will forgive you Art because you are using the antiquated MPG instead of the metric. I have not seen a turbo diesel get more than low 40’s to mid 40’s. I have a Jetta TDI that generally gets around 40. The author pumped up the Cruze also I believe it does no better than the TDI I have. Now if you take the typical American large pickup it will in the future be used as a people mover and like a bus will have better fuel economy then even a hybrid. In a 4 door ½ ton pickup you can put 5 people in the truck and 14 in the bed. These trucks will be used for utility work also. They are built very tough and will last much longer than the typical high mileage sedan you see in Europe. A diesel ½ ton is that much better. I have heard many complaints about low mileage SOV (single occupancy) American vehicles and rightly but when the decent is in full swing they will have utility. The heavy duty 4 wheel drive will deal well with the pots holes and cracked highways of the future. My next purchase is a New GMC diesel Canyon. I need a pickup for the cattle.
I ride a bike on the farm here. I have a 15 speed specialized 29’er mountain bike but I recently bought a single speed mountain bike because of the long term durability and simplicity of no gearing.
Art, I have a 50 Liter Non-pressurized compact solar water heater using vacuum tube. I will use this as supplemental water heating. It is in the barn until needed if and when the grid becomes unstable. The cabin is plumbed to switch over when needed. I have an electric tankless hot water heater in the cabin to use while grid is up and relatively cheap. I have a 2000 Watt Model – Mobile Solar Generator with lead acid batteries for my lights. I can use it all over the farm since it is on a trailer. Your heat pump idea is great. I have wood heat because I have an abundance of wood here. I am making a wood ceramic bread oven to cook with. I am going to get good at making bread. I have charcoal grills to use. I plan on building a charcoal kiln soon also. I have a small plastic greenhouse but will get a nice glass one when I have the money. We are on the same page art it is just you are urban and I am farm.
eugeni on Tue, 22nd Apr 2014 5:25 am
Acceptance of PO would mean nasty changes fore everyone, to maintain BAU means to delay this changes, maybe for decades, making millions of people energy poorer in the “developed” world and avoiding the development of the “undeveloped” world. What do you think is going to happen? Nasty reality we live in…
Arthur on Tue, 22nd Apr 2014 5:37 am
I will forgive you Art because you are using the antiquated MPG instead of the metric. I have not seen a turbo diesel get more than low 40’s to mid 40’s.
Just courtesy towards American readers. 30 lm/liter = 70 mpg
https://www.youtube.com/watch?v=5h9K6lzpmHA
That car came 12 years too early. Audi engineers got the behest to construct a car with optimum fuel efficiency. It did not sell very well, since in 2002 everyone was still interested in horsepower and getting from 0-100 kmh as quickly as possible. I don’t think they were ever sold in the US.
en . wikipedia.org/wiki/Audi_A2
Officially it has a fuel consumption of 92 mpg, but that is unrealistic. But I can drive to Basel/Switzerland from Holland on a single tank of 22 liter (5.8 gallon) for 27 euro.
Davy, Hermann, MO on Tue, 22nd Apr 2014 6:02 am
Great Art, I wish I had one but I will have to get a pickup for my cattle operation and just drive less. The new diesel canyon is talking 30 plus mpg with the small 4 cylinder GM diesel. I am still banking on roads cracked and potholed everywhere within 10 years including broke Europe. So, Art that Audi will be traveling awful slow. I banking on fuel through the transition but I imagine it in short supply and rationed. This is a guesstimate on a contracted BAU in transition. It may be wishful thinking and best case scenario for a gentle landing and reboot. There is so much infrastructure for oil and much oil still around I believe we will still have some supply for the next 20 years. Eventually because of the lack of investment and entropic decay fuel supplies will be very very stressed. Eventually we will be looking at animal power.
meld on Tue, 22nd Apr 2014 6:06 am
Arthur, keep us updated on how it goes. Good luck with the veg, but you made your first mistake by digging rather than sheet mulching, you’ve just degraded the quality of your soil by 100% and wasted a load of effort in the process. Should of just sheet mulched, plonked potatoes on top and covered in straw. Job done. I hope they don’t start charging you a higher base rate to generate solar, but it seems inevitable. We’ll see how you turn out by the end of 2014 😉
Davy, Hermann, MO on Tue, 22nd Apr 2014 6:11 am
Meld unless you have ample space and top soil like I do. My garden is 10,000 sq/ft. I am limited by labor since it is just me and 400 acres. My fertilizer is the cattle dung and compost I can collect, process, and age.
Beery on Tue, 22nd Apr 2014 6:17 am
Peterjames wrote: “Arthur, I didnt see the bike with the trailer on the back, carrying 4 tonnes of bitumen to fill the pot holes. I didnt see the paramedic driving the bike with trailer to allow him to transport a bike rider to hospital after he came off the bike, after hitting a pot hole. I didnt see the bike transporting 10 tonnes of groceries to the supermarket to feed all the bike riders.”
I don’t see the average sedan doing those things either.
“Its a toy, not a solution.”
So is a car.
The thing is, a car can never even be part of the solution. E-bikes can though I prefer the standard push-pedal bike, which is even more of a solution.
Davy, Hermann, MO on Tue, 22nd Apr 2014 6:24 am
Beer, the Amish horse and buggy is a good option also. I am eventually going to look at getting a horse for such transport.
http://amishbuggyrides.com/buggieshorses/
paulo1 on Tue, 22nd Apr 2014 7:59 am
Davy,
Have you looked into wood gas conversion of an old beater truck?
Meld,
Your mulching technique is climate specific. Here on the coast I tried mulching like than many years ago after reading Ruth Stoudt. We used straw and sour hay. The slugs loved it and hid throughout migrating out to feast on everything. (These ain’t your little pink lower-48 slugs.) These are 6 inch bannana slugs and 3-4 inch black Europeans + an even larger spotted vairiety. The chickens don’t touch em, although I fed them to a bullfrog in an aquarium, once. Furthermore, the light colour of the mulch was reflective and the soil stayed cold. Tried landscape fabric over the top and that made the slugs worse. We now replenish soil with much compost on a yearly basis and rotate potatoes in new ground tilled and fallowed on a yearly basis.
This works much better for us.
Paulo
sunweb on Tue, 22nd Apr 2014 8:10 am
arthur – a sterling example for the world to model. Let’s see we need:
3 to 4 billion new cars for better mpg
3 to 4 billion refrigerator/freezers
3 to 4 billion solar installations with all the necessary devices and storage
billion upon billion of gizmos to be run by the solar.
Still need lots of toilet paper.
Lots of clean water and probably a few dikes here and there for all increase in water levels due to manufacturing all the above.
Keep up the good work.
simonr on Tue, 22nd Apr 2014 8:14 am
Davy
We have a horse and cart, we use for a fair amound of stuff (soon click and collect at the local supermarket).
We use them for hauling hay/Shopping/Picking up wood (debardage) and next week learning plouging and cultivating.
I can recommend it, and checkout ‘Paddock Paradise’ for keeping them.
Simon
shortonoil on Tue, 22nd Apr 2014 8:22 am
“Discussions I’ve seen of peak oil focus upon it as an issue in geology: how many years until production begins to decline [name your fossil fuel]. As an economist, however, that’s irrelevant, reflecting a misperception that underlies the 1980 Simon – Ehrlich bet.”
A classic example of comparing apples to oranges, and coming up with cumquats. He claims geology is irrelevant, and yet is completely comfortable ignoring the fact that his “dollar” has depreciated to almost nothing. A dollar bought 42,350 BTU in 1975, in 2014 it buys 5,870 BTU. (see graph# 12 at our site). As an economist he apparently knows that geology, energy, and hydrocarbon quality are all irrelevant to the sanctimonious dollar. Their is only one problem with his methodology; he misses the Peak by a decade!
http://www.thehillsgroup.org
Davey on Tue, 22nd Apr 2014 8:30 am
Paulo, I have a PDF on wood generators. I have the old beater truck Toyota Tacoma I need to put that on my list not necessarily for a truck. Could be useful around the farm for other applications.
Simon, I am seriously going to look at horse draw transport because everything is here with the cattle operation.
Now guys see why I need 3 more years of BAU!
Nony on Tue, 22nd Apr 2014 9:01 am
I wonder how much of the price dynamic is from OPEC’s increasing effectiveness versus Hotelling type (depletion driven) price rise. The 2008 market action was very strong and very real. OPEC is not irrelevant.
ghung on Tue, 22nd Apr 2014 9:09 am
While all of these solutions are location and climate dependant, passive solar and thermal mass can (should?) be the base for home heating/cooling, and solar thermal for hot water. In our home, everything is ‘in addition too’ these things.
Installing a large heat storage tank (1600 liter HDPE tank, insulated) allows heat storage into plain water from various sources including solar, wood, even the generator (though it rarely gets used). That large source of hot water heats the DHW and the slab floor when needed. PV-pumped solar hot water is very reliable and long-lived; field repairable. PEX plastic tubing has an indefinite service life, especially if not subject to sunlight.
Of all these things, passive solar home heating/cooling was my best call. The home essentially heats and cools itself with a little management, and will as long as the structure lasts. The only moving parts are operable windows and thermal curtains. FYI: We get 65 inches (165cm) of rain per year; not the sunniest location on the planet, yet this strategy has been enormously advantageous.
Batteries: I still see lead/acid batteries as king when it comes to non-mobile storage, since they can be locally manufactured, recycled, re-manufactured; a future cottage industry, IMO. If one has the funds, NiFe batteries last a very long time with little maintenance.
Davy, Hermann, MO on Tue, 22nd Apr 2014 9:19 am
G, you have a link or pdf for more details?
simonr on Tue, 22nd Apr 2014 9:47 am
Davey
I am fortunate as a good friend has just retired from his job training horses to work. In his first year he trained 1 for work and 10 for sport riding, in his last year he sais he trained 15 for working and only 1 for pleasure … a sign of the times.
IM/Email me I have a ton of resources if you need them 🙂
Simon
Davy, Hermann, MO on Tue, 22nd Apr 2014 10:15 am
Thanks Simon, I have a neighbor I am working with similar to what you described. It “IS” a sign of the times people are waking up to animal labor and it is a direction I am heading. My problem now is I have so many ideas in the frying pan I have to focus and digest them little by little for financial reasons and time/effort constraints. I am already putting in 10-14 hour days depending on the weather and that is 7 days a week. I am lucky because I love what I am doing I just hope my health holds out and I don’t get injured. I am involved with farm activities, heavy equipment, and maintenance activities and they are in the top 10 for injury and death.
ghung on Tue, 22nd Apr 2014 10:26 am
Davy – Since I did most of these things before I started blogging, I didn’t document much, but could do a short (it really is that simple) post on different components of the systems. Hot water storage? Passive solar?
Our hot water storage tank was sourced locally from these folks….
h ttp://www.carolinawatertank.com/watertanks2.html
…. and is the 45″dia x 78″ht model (485 gal). I put two loops of 1/2″ copper tubing in the bottom as input heat exchangers and a loop of 3/4″ copper tubing near the top as a heat exchanger for DHW. All tubing exits the top through drilled holes. The top loop is valved to either bypass or feed the tankless propane water heater (Bosch 125S) which is designed for solar pre-heated water. The system is generally in the bypass mode; no need for propane.
In winter, a pump (controlled by a simple differential temperature switch) turns on and circulates water directly from the bottom of the tank to the woodstove and back to the top of the tank. This is NON-PRESSURIZED, since the tank is vented to atmosphere; no chance of steam explosions.
The floor heat circ pumps draw hot water directly from the top of the tank, pulling water through the floor and pushing it back to the bottom of the tank.
The solar water heaters are fed directly from the tank as well and are of a simple drain-back design; no need for glycol antifreeze; also controlled by a simple differential controller (typical to most solar water heaters, available at places like the AltEStore: h ttp://www.altestore.com/store/Solar-Water-Heaters/c402/ ). Pumps are stainless Grundfos, but Taco pumps are comparable. No need for a lot of flow, but with a drainback system, the pump must be able to overcome the initial head (get water to the collectors and back; after that, the head is near zero). In my case, the collectors are directly above the tank/pump; only about 6 feet of elevation by design, allowing for a smaller, lower wattage pump.
This system (the collectors) could be a conventional closed-loop SWH, but I like KISS, and it’s working well except in winter when the woodstove is heating water.
Our tank water temperature ranges between around 130-160 degrees. I like to make sure the temp gets above 140 to kill bacteria/legionaires, just in case. I also add an anti-corrosive to the water, but that’s it.
We have LOTs of hot water; good for ageing bones and muscles. Our water is solar-pumped from a good spring, so we have a large surplus. It goes to a 1200 gal tank on (in) the ridge above the house and gravity flows back to give us a steady 35psi. Except for an occasional cleaning of the spring box, this system has been virtually maintenance free for 17 years. I pull the ‘SunPump’ every few years for inspection and cleaning. Beats dealing with a well company,, and we keep a couple of field repair kits in case of a diaphragm or seal failure. Haven’t needed repairs yet. This pump is also PV direct (no controller); a single 190 watt panel powers the pump. We also have an AC well pump in the spring tank for backup which I may as well remove, though I like having redundancy.
When I get time, I’ll diagram these systems and post a link.
ghung on Tue, 22nd Apr 2014 10:38 am
I forgot to add that I put a 3500 watt electric water heating element in the side of our hot water storage tank which gets surplus PV production after the batteries are charged; a ‘dump load’; runs off of our big inverters via a voltage-controlled contactor switch. Makes significant hot water on clear days. We love hot water; easy to make; lots of uses.
simonr on Tue, 22nd Apr 2014 10:40 am
Hi Davy
I am in France, and here the Gov. is actively encouraging the use of ‘traction animale’ as a green alternative.
We still have a load of old gear kicking around, people were farming with horses until the 70’s and are now re-starting (We just did a vineyard a few months ago), so loads of stuff around.
I would be really interested to see your results/approach but possibly this is not the right thread 😉
Email me on
info@tir-a-larc.fr
Simon
Arthur on Tue, 22nd Apr 2014 10:51 am
@meld: Arthur, keep us updated on how it goes. Good luck with the veg, but you made your first mistake by digging rather than sheet mulching, you’ve just degraded the quality of your soil by 100% and wasted a load of effort in the process. Should of just sheet mulched, plonked potatoes on top and covered in straw. Job done.
No choice, as I was absent for almost 10 years from my base address, so the ‘garden’ had turned into a wasteland with the soil completely covered with ‘kweekgras’ (couch-grass?) and ivy. Really had to dig deep and sift the soil to clean it from organic material, a spade deep.
Davey on Tue, 22nd Apr 2014 11:27 am
Thanks simon. I will get back with you this evening. In the garden now weeding and tilling on a glorious spring day. Life is good!
Meld on Tue, 22nd Apr 2014 11:54 am
@ Arthur – All you need is A big pair of hedge/grass cutters, cut the area down to ground level, leave the cuttings where they lay, chuck a load of cardboard/newpaper on it making sure it’s overlapped and wet it down. Then add soil condiments and straw or lawn mowings on top, municipal compost if any available ontop of that but not necessary. if you have all the resources already collected should take under an hour and will kill your couchgrass and any other pernicious “weeds” (did you know couch grass was once in high demand due to its medicinal effects) whilst leaving the soil in the best condition you can get (mimicking a forest floor)
Unless you got all that couchgrass out (every root fibre you saw) that bad boy is going to grow back with a vengeance.
Arthur on Tue, 22nd Apr 2014 12:17 pm
@meld… aaahhh too late.lol The onions are already peeping through the soil.
I know that couch-grass will come back. Next year I am going to do it properly, like Kunstler did and really sift the soil:
http://kunstler.com/my-garden/making-a-garden-2012/
(6th picture)
Davy, Hermann, MO on Tue, 22nd Apr 2014 8:41 pm
GOT IT G, thanks!