[Whitecrab]

Need an economist's help - peak oil will HELP our economy? I've been shooting e-mail back with my uncle, who's a petroleum engineer, and we're doing the tar sands/coal methane/deep sea gas hydrates dance right now.

He sent me a few articles, a little faith that technology can almost double our extraction abilities (with cost, yes) and that companies have been slumping on exploration because it hasn't been profitable, but will pick up later. Anyway, this particular article interested me the most: Why we need $ 60 a barrel oil

I'm having trouble understanding the full impact of the article is saying, I was hoping I could get some help? Some quotes of interest:$this->bbcode_second_pass_quote('', '[')b]Higher oil prices operate to stimulate first the world economy, outside the OECD countries, and then lead to increased growth inside the OECD. This is through the income or revenue effect on oil exporter countries, and then on energy-intensive metals, minerals and agro commodity exporter countries, most of them Low Income (GNP per capita below $ 400/year).

[Andy]

It is possible to a certain extent. What he is saying is that higher oil prices means higher incomes for poor resource exporting countries. High oil prices translate to high metal, food and mineral prices which many developing countries export. Once the developing countries earn the extra money, they instantly start demanding manufactured goods from the OECD (Organization for Economic Cooperation and Development) or the rich industrial countries like the U.S, Western Europe, Japan etc. This increased demand worldwide then pulls the Western economies at the margin as well leading to overall economic growth. The problem is when oil rises to such a high point that demand all around is suppressed. Right now all the world's economies are firing on all cylinders because of recent increased real resource (metals, food, raw materials etc.) prices. It will be halted when oil prices rise high enough (much higher than present, maybe $80 - $100 per barrel) to counteract actual shortfalls in supply and then a depressionary effect on the world economy takes hold.

[Pops]

I think Andy has it translated, but I don’t remember things being so bad in the ‘90s with historically cheap oil, pretty good economy as I remember.

Sorry I didn’t read the article yet but it seems counterintuitive that higher energy prices would benefit “energy-intensive metals, minerals and agro commodity exporter countries”. But then again I’m no economist, probably makes perfect sense to them, lol.

On the other hand I can see how high oil prices are certainly good for “Alexander’s Gas and Oil Connections”

BTW, Google for “exploration loss” or similar. I saw a figure or quote showing losses - exploration expense vs. discovery value, by the top 4-5 companies over the last 3-4-5 (?) years. Sorry I can’t remember where, maybe it was it Simmons?

[syncrude]

This is the best explanation for someone looking at the situation from an economics perspective. It is Part II in 2 part series. Hubbert's Peak is actually mentioned. link

[OilsNotWell]

CNBC Also had an analyst mention peak oil, and basically, how not to expect to ever go back to cheap oil. Peak Oil will now see quite a bit of coverage this weekend, and it will now play into the news cycle. In other words, now that oil has actually broken records, they'll try to answer why in their story, and give play to peak oil theory. They did, however, mention that the "peakers" were "a minority," and peak could be anywhere between now to thirty years from now. However, one analyst mentioned dates of 2005, 2010, and 2015 for peak oil. A strange sense of "don't panic" with "reasons to panic."

As far as the larger media goes, they may tend to "like" this story more because of it's environmental aspect, among many other things. This story has "legs" but it is will largely be dismissed until really, really, blatantly obvious things start to happen (as in: "How come my gas at the pump is $3/gallon!! Doh!) Then people will start to demand answers, and then re-answers, and then finally, most will realize the full, inescapable, brutal, real truth. Expect a gradual transition to that point, then increasingly rapid changes.

Also expect to see big price swings in oil, as those who recently read about the theory for the first time may try and jump into the market, and earlier and larger investors try to get out. That will fuel even more speculation. Very, very volatile. Nervousness, panic starting to begin. But just as predicted, IMHO.

Certain leaders, national bodies, and other indviduals and organizations may try to instill "calm." But all the talking in the world will not change geology and our rate of consumption.

[Soft_Landing]

There seems to be two divergent schools of thought on the effect of peak oil on global economy. Some people tend to think that the collapse of any one country will have flow on effects as other countries loose export markets, resources, or labour pools. Thus, the collapse of any one country would seem to increase the risk of world economic collapse. Others tend to point out that if any one economy collapses, that releases pressure on energy demand, and lessens the likelihood of global financial meltdown.

Obviously, these two possibilities are contradictory. I've spent way too long trying to come up with clever analogies to capture these concepts, and this is the sorry best I could do:

Struts in a building analogy: Each economy is like a strut in a building (global economy). If any strut snaps, the likelihood that the building falls increases.

Straws on camels back analogy: Each economy is like a straw on a camels back. But wait for it, here's the kicker, each straw is getting heavier. If the straws get too heavy, the camel collapses, but if a straw falls off the back of the camel (collapses), then the camel (global economy) can continue.

If someone can please please think of a better analogy for that second one i'd appreciate it.

Anyway, which analogy suits the worlds economy best?

In analysis, some economies may prove to be more like a straw or more like a strut.

For example, Saudi Arabia is almost certainly something of a strut. If it collapses, the massive shortage of oil would have wide reaching economic consequences. One might imagine China and the USA to be something of struts too. But how about Japan? Providing few natural resources to the world economy, yet using a sizable amount of world resources, perhaps the collapse of Japan would relieve pressure on the global economy. Is Japan a straw?

[nero]

Its a really big game of pick-up sticks It's very hard to know if that particular stick is a structural member or not until you try removing it.

(Stretching the analogy)

The two scenarios could be construed as :
1. As you take sticks away from the pile the likelyhood of the pile collapsing increases since the next stick you take may be a crucial stick holding up the rest of the pile.
2. If you remove some unstable sticks from the top of the pile the smaller pile will be less likely to collapse.

[Hermes]

I'm piecing together my understanding of what will PROBABLY happen and there are a few issues I still don't 'get'.

One of them being: why would the oil companies NOT want people to know that their oil is running out.

If I had some item...let's say...Heath bars. And everyone loooooves Heath bars. And there was a finite supply of Heath bars. Well if they were running out I'd want everyone to know that they were running out, so I could charge more for them, and make people want them reeeeally bad.

Now why don't the oil companies do the same thing? I'd think that if everyone found out that the oil really IS running out that the price would go up and the oil selling countries could charge really high prices for it, thus pocketing more bling bling.

I imagine there's another posting to this effect, or some web source describing why it is that the oil companies either don't want people to know they're running out, don't want the price to go up, or both. If people could either answer my question OR include a link I'd be grateful.

Thanks!
-Hermes ^$^

[backstop]

Hermes - many reasons, some of which are in a recent thread on this question - can anyone post the link ?

Here's one to be going on with.

You had an effective monopoly on making and delivering Heath bars (whatever they may be) but gradually others become able to do the same. You used your clout to insist that all heath bars have to be sold in a currency that only you can print. Your monopoly has thus shifted from heath bars to currency, which all have to buy to be able to buy heath bars.

However, the whole thing has been a con. There are all sorts of Cocoa-fruit bars that could be made and would be much better for people, and everybody could make at least several versions, rather than just some being able to make heath bars.

The con trick will end the day you have to admit that the finite nature of heath bar production means that supply can't continue to grow, but must start declining. On that day, a whole lot of investment moves out of your currency and into the various cocoa-fruit bars' development.

What's more, people will then stop producing cash crops and selling them to you for whatever they'll fetch in order to earn your currency to pay for heath bars. You're also likely to start being sued for the damages your heath bars have been causing. (First scientifically demonstrated in 1896).

Nuff said ?

regards,

Backstop

[SilverHair]

Would you have invested in a buggy whip producing company after the invention of the automobile? If you were working for such a company would you try to beat the crowd and find a job elsewhere now? If you were an investor would you invest in a company in a dying industry?

Add to this the don't worry, be happy sort of approach that makes us avoid unpleasant thoughts.

[Hermes]

Hey Backstop:

Thanks for getting back to me.
First of all: heath bars are a yummylicious candy bar that you can buy in various locations in the U.S. (at least...). They're two little delectable toffee bars dipped in chocolate...mmmmm.

So to make sure I understand the meat of what you're saying:


$this->bbcode_second_pass_quote('backstop', '
')You had an effective monopoly on making and delivering Heath bars (whatever they may be) but gradually others become able to do the same.

[Hermes]

Aaaaahhh... so now that I've thought about it a bit, and based on what you've had to say here's where I'm at with my understanding:

1: the oil companies don't want people to know the oil's running out because people will pull their investment in the companies. That makes sense to me.

2: the U.S. doesn't want people to know that the oil's running out because the dollar would plummet if people stop trading in oil. I don't yet understand all the details of this one, but I can follow along...

3: the reason that the countries WITH the oil fields don't raise their prices (or let people know they're running out of oil, etc) is because we threaten them in one way or another. I've read about the trade-off that we have with the Saudis of keeping them in power with our military in exchange for low oil prices, and our military build up and attempted coup in Venezuela, etc. This is kind of another continuation of colonialism.

Okay I think I get this aspect of what's going on now. (and if there's something wrong with my understanding here then please someone feel free to let me know...)

[Anonymous_Coward]

There's indeed something wrong with your understanding.
Forget that nonsense about the dollar. Oil companies are handing out dividends rather than raising capital. As to the neo-colonial explanation, well, it dates back to the days when OPEC was curtailing production...

Here's the deal (at least this is how I understand it):
Oil is not running out. Whenever oil peaks, massive quantities of oil will continue to be produced for decades.
Oil wouldn't suddenly get significantly scarcier if most people thought that it will peak next year rather than around 2025. This is a long-term issue and people are only going to hoard that much oil.
What will get oil scarcier in the future is the lack of preparation for the decline of production. The longer producers can maintain the illusion that peak oil is not a truely urgent matter, the higher the price will climb when the shit hits the fan.
In other words, maintaing relatively low prices and the illusion that there are plentiful supplies for the time being could well be a strategy designed to prevent alternatives to oil (or simply ways to consume less of the stuff) from being developed.

[Hermes]

Hey:

First of all thanks for responding to my post.

Second: I can't really use it too much in its present form.

I would say it's presented in a fairly scattered way, and what I'm looking for are more carefully constructed statements, especially seeing as I'm comparatively new in my understanding of the peak oil issue.

I want to thoroughly understand the causes and effects of the impending crisis so that I can both act as effectively as possible, and I can motivate people around me to do the same. It may indeed be nonsense that the dollar is linked to oil, or somesuch. If you don't expound somewhat though on why people not trading in oil will not adversely affect the dollar I'm not going to get much use from your post.

Again: thank you for responding to my post. I would really like to 'get' more of what you're saying, and to do that I need to have a few more sentences about how you've formed your opinions as stated.

-Hermes

[willardbushsr]

What I find the most hilarious is, if someone is so against what Matt is saying in his book, or the whole PO issue, why on Gods green earth are they in this site or on this forum?
I have spent a great deal of time on this world, and although I do not liken easily to the doomsayers, I do take what they have to say into account and begin to delve into what they (and others) have to say about the issue.
Yes you'll have the alarmist (like the Y2K bunch) but in their minds there was a real threat. I beleive as rational, intelegent human beings we are tasked to seek the truth, to look at both sides of the argument before making our own conclutions. calling names and throwing uniformed, or uneducated comments at these people only reinforces my beleif that they are on to somthing important, and that it scares the hell out of the nay-sayers because they dont really know what to think!

[JC_SaltLaker]

$this->bbcode_second_pass_quote('Hermes', '1'): the oil companies don't want people to know the oil's running out because people will pull their investment in the companies. That makes sense to me.

[backstop]

Hermes -

thanks for your thoughtful responses to my somewhat sketchy outline of the issue and of the possibilities of the cocoa-fruit bars opportunites. I guess you're seeing that this onion has a number of layers to it . . .

One rather promising aspect of the whole dynamics is that oil-producers appear just as reluctant as oil companies to see any serious scale of investment in the BREDs (Budgets for Research, Exploration and Development) of the sustainable energies.

Of myriad hints and indicators of this I've seen over the years my favourite concerns the agenda for the Rio Earth Summit for "Environment & Development" in 1992. For that agenda, the Vatican vetoed any discussion of population limitation, and Saudi Arabia vetoed any discussion of sustainable energy . . . . .

I say this is promising since it indicates that the Oil Producers are well aware that the sustainables will be well able to compete on price and attractiveness for public subsidy, and so take global market share from fossil fuels, if they are once given appropriate development funding. Logically, if they were inherently unable to compete on price and attractiveness for public subsidy, Saudi Arabia, as the major oil producing nation, would have had no interest in suppressing their discussion.

JC -

There is a further possibility as regards Big Oil's strategy of inaction over investment in the sustainable energies - I say 'inaction' here to reflect the fact that fossil resource BREDs are of the order of 100 :1 compared with sustainable BREDs, that is two orders of magnitude difference.

That further possibility is that Big Oil has yet to see a sustainable energy resource by which it can retain its present global corporate dominance of energy markets, as these resources are highly diverse in form and technology and very widely dispersed geographically. Effectively they serve nations and communities' energy self reliance, not their energy dependence on the dominant centralist energy corporations.

If Big Oil cannot retain that dominance, it evidently isn't interested in investing for future sustainable energy supplies. Clearly, it could perfectly well have been doing so since 1980 (see Pres. Carter's speech) and on a substantial scale had it so wished.

What relatively cosmetic investment it is making is into those technologies that do most to retain its dominance, be that industrializing the landscape by 'parachuting-in' remotely-owned giant Wind-Turbines, by constructing highly automated (worker-free?) Solar Panel plants (mostly on green-field sites), and by promoting Hydrogen for Fuel Cell Vehicles, where the fuel's distribution and marketing would be so technically sophisticated that small producers could be easily marginalized.

According to Enron-economics the goal is not to profit from providing reliable customer service, it is to maximize profit by boosting expectations and then withdrawing one's capital before the crash.

I wonder if you may agree that we've yet to see Big Oil demonstrate that it is not, in practice, being run on a strategy based on Enron-economics ?

regards,

Backstop

[JC_SaltLaker]

$this->bbcode_second_pass_quote('backstop', 'A')ccording to Enron-economics the goal is not to profit from providing reliable customer service, it is to maximize profit by boosting expectations and then withdrawing one's capital before the crash.

I wonder if you may agree that we've yet to see Big Oil demonstrate that it is not, in practice, being run on a strategy based on Enron-economics ?

[backstop]

JC -

Considering how small is the volume of oil suppy for 2020 in which Exxon is investing compared to the required volume for economic growth to continue, I'd suggest that

a/. they could scarcely invest less without making obvious the fact that oil supplies will have declined heavily by then, and,

b/. they are investing on the unproven assumption that they'll be able to sell into a functioning energy market at a profit, not that peak oil will occur at any particular date.

I would add that while Big Oil may appear monolithic, in reality it is riven with internal stresses and fractures, so, IMHO, as peak oil approches, we may well see uncharacteristic pragmatism displayed by discreet parts of the entity; i.e. its apparent cohesion may begin to crumble.

That said, there are of course further layers of the onion to consider . . .

regards,

Backsop

[marek]

There is a good (although very mathematically complicated) article in Vol. 51 of Ecological Economics (Elsevier) about the inseparability of energy from other production factors. I guess this is only useful for economists, because the math is prohibitive. Still, if you get to meet a neoclassical economist who dismisses the energy problems, I would suggest that you let them know about this article.