[Ludi]

{split from: Peak Oil is on the Horizon; Why aren’t we acting? by MQ}


$this->bbcode_second_pass_quote('rwwff', ' ') Everyone gets the opportunity to adjust to new realities with appropriate purchase and lifestyle decisions, and at $200 a barrel all kinds of interesting things become economically viable.

[rwwff]

At $70 a barrel, no changes are needed..

At $200, I think you'll get some choice forcing, and as long as the market gets to decide exactly what the available choices are, I'm comfortable with whatever the result happens to be. At $200, I think we're talking $7'ish a gallon at the pump.

Assuming a 15,000 mile/year middle class family...

At 15mph (avg SUV)
$2/gal -> $2,000/yr -> $167/mo
$3/gal -> $3,000/yr -> $250/mo
$5/gal -> $5,000/yr -> $417/mo
$7/gal -> $7,000/yr -> $583/mo

So, at the $200/barrel price vs today, you're taking an extra $300 per month or so out of $3,000 or so of monthly take home. Generic car note is $350 / mo; so you begin to approach the point where a third commute car becomes reasonable. Most of that 15k miles per year are commute miles, so if Joe goes and buys a 60mph turbodiesel for his drive to work, and keeps the Expedition for hauling the kids from school to soccer and the occassional hunting or camping trip, you'll end up with:

(40mile rd trip commute, 250 commute days, 12.5k miles in the 60mph car...)

$7/gal for
2.5k miles/yr at 10mph -> $146/mo
12.5k miles/yr at 60mpg -> $121/mo
Total -> $267/mo

But here is the rub, if it is a smooth increase all the way to $200 a barrel, this is no sweat, Joe whines a bit as it gets more expensive to feed his Explorer, but then the note is paid off and he starts thinking new car, the funds are available for the car note again, and the cost of gas is finally high enough to actually influence his purchase decision. OTOH, if the price is artificially suppressed in current markets, such that no price signal is given to consumers over time, and then we hit this "peak" hard, no economic force in the world could prevent a spike to $200, and the subsequent surge in pump prices over a very short time period. Joe can't finish the note on his Explorer, he looses a lot of money and capability trying to trade in for a more efficient car, a large enough pool of people get similiarly hit, and you do get a recipe for a strong recession or depression.

Longer commutes make this analysis even more stark, and can work to Joe's advantage if he's willing to drive the efficient car to work. The choice finally resolves to:
1) big mortgage, small house, close in, big car
2) low rent apt, anywhere, big car
3) small mortgage, big house, far out, small car
4) tiny mortgage, 1500sqft house, far out,
drive with impunity.

I think of these, #3 and #4 hold the most atraction for American middle class families, and I think #3 has the edge. But who knows, the market may show that people prefer #2... And as long as people are free to choose between those with minimal government interference, I think we'll be in good shape given the smooth rise scenario.

[rwwff]

$this->bbcode_second_pass_quote('MonteQuest', '
')The "invisible hand" has no solutions this time.
In fact, the "invisbile hand" is part and parcel to the problem.
Appropriate "purchases" ?

Lifestyle decisions maybe, but not in this paradigm.

You can't "buy" primary science.

[Ludi]

$this->bbcode_second_pass_quote('rwwff', 'L')onger commutes make this analysis even more stark, and can work to Joe's advantage if he's willing to drive the efficient car to work. The choice finally resolves to:
1) big mortgage, small house, close in, big car
2) low rent apt, anywhere, big car
3) small mortgage, big house, far out, small car
4) tiny mortgage, 1500sqft house, far out,
drive with impunity.

[killJOY]

You know what I'm worried about?

Haying this season. We don't burn a lot of gas, but we have to, as we haven't quite gotten around to making our horses work for their keep. Peak oil will probably be the nudge we need to go horse-powered finally.

Luckily, we don't bale, so that's one expense we don't have.

Those tractors are gonna cost us this year.

[rwwff]

$this->bbcode_second_pass_quote('Ludi', '
')I'm sorry, but you seem to live in some bizarre alternate reality. Are you aware that many cities do not have (2)low rent apt? "Anywhere" - what a joke.

[Ludi]

$this->bbcode_second_pass_quote('rwwff', ' ')Thats $2350/month, a take home of only $28k. That leaves the difference between actual take home and this $28k

[rwwff]

$this->bbcode_second_pass_quote('Ludi', '')$this->bbcode_second_pass_quote('rwwff', ' ')Thats $2350/month, a take home of only $28k. That leaves the difference between actual take home and this $28k

[Tyler_JC]

"have placed large tracts of oil producing properties off limits simply for the sake of aesthetics."

?

Are you under the false impression that another Saudi Arabia is hiding in our national parks and forests?

We may have as much as 5-10 billion barrels in American reserves that are untouchable because of environmental laws. (and this is probably significantly above the real numbers)

But that is less than 1/6-1/3 of total oil consumption in the world for 1 year.

And we don't get to suck it all down at once. There's a production curve there too.

Even if we abolished the EPA, peak oil would still happen this decade. We can only delay the inevitable for a few years. We don't have the option of pushing this back untill technology can save us. We simply don't have enough spare capacity and reserves.

[rwwff]

re: large tracts. Offshore, in particular FL, CA, OR. I don't know, nor does anyone know, what is there. And that is the problem. We can't assert that there is not ten times the Saudi reserves sitting out there, and we can't assert that they are all barren wastelands with regards to petroleum.

We know, pretty much, whats on land, and you are quite correct. There is no "saudi" out there. On the other hand, just because a particular offlimits field isn't equal to the saudi reserves is no reason to refuse to drill!!!

[rwwff]

I think, also, you may be missing my point about these fields. Its not that their explotation or not will effect the achieving of a final peak in production. It is a long term point about available assets in a post peak environment. In a certain way, this feels to me like a cruel game the US is playing with the rest of the world. We are trading pretty paper to acquire everyone elses useful goop. As the rest of the world starts to max out, we poke all the bad actors in just the wrong way in order to run up the price of oil. The price of oil, in a macro scale, begins to force US consumers to make appropriate choices concerning energy efficiency; then as the rest of the world finally urps up the last of the last of its easy oil, the US (with the excuse of unsustainable medicare and SS expenses or some other jibber jabber) monitizes its debt, leaving all those fools out there holding green toilet paper, while the US stands in possession of what will then seem like rediculously huge productive oil fields.

The heart of American capitalism, trade nuthin for something and give nuthin back.

Simple version. Use theirs. Save ours. When they run out.... Just smile while holding the MP5.

[peripato]

Hello rwwff,

So what you're saying is that money (or is that debt?) is going to repeal the laws of physics and human nature?

You understand that oil production in the US peaked over 30 years ago? That over 80% of its ultimate has already been extracted,
and that based on Hubbert's analysis US domestic oil supplies will be effectively gone by 2020? Or that the EPR of well-headed oil will be approaching unity soon? You have studied up on these facts and their implications, haven't you?

I'm afraid the great cosmic cashier will not honour your funny money in exchange for plentiful amounts of inexpensive, high quality domestic oil when the time comes to implement your master-plan. A souffle does not rise twice.

And what makes you think that the world is simply going to roll over as you say so that the good ol' US can inherit the universe on a silver platter? Foreigners will keep attacking you at home and abroad, financially and militarily, as they are already doing - except on a far grander scale if you attempt to grab more and more resources like oil as they decline, in order to keep the Chuck E. Cheese lifestyle going for a little while longer, because they will have nothing left to lose. If the constraints of the physical world don't destroy you, then the politics of envy surely will.

[shady28]

$this->bbcode_second_pass_quote('rwwff', '
')
Just because I can do, and am honest with, the numbers, does not imply that I have no empathy for those whose take home cash is well below the national average. Yes, they are going to get screwed, they won't have the financial flexibility to adapt as prices change, and have little in the way of buffer against lumpy expenses.

Lets talk about the range of people who are above the level for government assistance but below 75% of the median income. They are going to have some aweful choices, that can't really be helped or avoided, but lieing about the numbers, or claiming some magic technology, or worse, declaring that there will be a global meltdown certainly isn't going to help them survive the difficulties.

[rwwff]

I know what median means (:->), and we agree on what the figure is.

My stated interest was the group that is above the level for government assistance to 75% of the median income; which is very near to the $32k/household level you seem interested in. I'm not sure why it took 20 lines to say we are talking about the same group of people.

Now, on to where we diverge.

You object to my choice of mileage. The whole point of what I was trying to say is that a steady increase in the price of oil will both allow and force compensating decisions by consumers. If a consumer wished to, they could easily choose a high mileage vehicle when they go to buy their next car, and if the increase is smooth but solid, there is no reason to believe that a consumer would purchase a car they could not feed. Thus, I assert, that a consumer is permitted to choose a 36mpg vehicle, if they were concerned about fuel costs. It is an optimal choice, not stated as a current averge economy rating.

Additionally, you use $1.50 as a baseline for gas price. You might as well use 25 cents as a baseline. Gas will never sell for a $1.50 again; and to be honest, I don't see any reason why gas should fall away very far from the $3 per gallon mark. Willing buyers / willing sellers. If you feel the need for a lower baseline for some cushion to keep the visualization above the x-axis, $2.50 should be more than adequate. We also disagree about the $7 vs $6 at $200/bbl but thats pretty inconsiquential. Price of a commodity is not bound by a ratio of its cost to produce, nor is a past trend a reliable predictor of future result when you're in unexplored territory. I think if markets will bear $6, they'll just as easily bear $7 and there's no reason to expect squeemishness on the part of retailers at that point.

Finally, and most unsupportably, your analysis depends on all these consumers being unable or unwilling to make changes to their transportation use while costs are consistently rising and their house is being foreclosed on. I just don't see how these folks will actually manage to drive 24,000 miles while simultaneously loosing their house. That's just not realistic for this income group. Something will give, and what will give with the least resistance are vehicle size and miles driven.

Oh, and BTW, I don't think this income group has much in the way of stocks and 401k's to begin with, and they already default on credit cards like its a form of entertainment. The sub-prime market is not made up of folks in the upper 40% median bracket...

Finally, change the scenario to a sharp spike that holds and all bets are off, I don't know that I quite buy the absolute catastrophe version, but I think it would be fair to characterise the result as... ugly. I'm not suggesting that this possibility isn't worthy of some modest hedging, as long as the hedging actions are not disruptive to the normal course of commerce and civic life; but to go on about it like its a fate accompli seems unreasonable.

[Ludi]

No, rwwff, you don't have empathy, because you don't understand that for those in the lower income bracket it is not a small matter to move or change jobs. You don't understand that people with a lower income have virtually NO flexibility in their way of life - NO savings, NO buffer of any kind. Where the hell are they going to get the resources to move or change jobs?

You just don't get it.

People are PAWNING their belongings to buy gas. In some cases they are pawning the very tools they need to do their jobs. In what way are these people supposed to "change their lifestyle" or purchasing decisions (LOL!) or move, or get a new job?

[shady28]

$this->bbcode_second_pass_quote('rwwff', 'T')he whole point of what I was trying to say is that a steady increase in the price of oil will both allow and force compensating decisions by consumers. If a consumer wished to, they could easily choose a high mileage vehicle when they go to buy their next car, and if the increase is smooth but solid, there is no reason to believe that a consumer would purchase a car they could not feed. Thus, I assert, that a consumer is permitted to choose a 36mpg vehicle, if they were concerned about fuel costs. It is an optimal choice, not stated as a current averge economy rating.

...

Finally, and most unsupportably, your analysis depends on all these consumers being unable or unwilling to make changes to their transportation use while costs are consistently rising and their house is being foreclosed on. I just don't see how these folks will actually manage to drive 24,000 miles while simultaneously loosing their house.

...

Oh, and BTW, I don't think this income group has much in the way of stocks and 401k's to begin with, and they already default on credit cards like its a form of entertainment. The sub-prime market is not made up of folks in the upper 40% median bracket...

[rwwff]

$this->bbcode_second_pass_quote('Ludi', 'N')o, rwwff, you don't have empathy, because you don't understand that for those in the lower income bracket it is not a small matter to move or change jobs. You don't understand that people with a lower income have virtually NO flexibility in their way of life - NO savings, NO buffer of any kind. Where the hell are they going to get the resources to move or change jobs?

You just don't get it.

People are PAWNING their belongings to buy gas. In some cases they are pawning the very tools they need to do their jobs. In what way are these people supposed to "change their lifestyle" or purchasing decisions (LOL!) or move, or get a new job?

[rwwff]

$this->bbcode_second_pass_quote('shady28', '.')...

[Ludi]

$this->bbcode_second_pass_quote('rwwff', '
')I think I've already indicated that these folks are going to suffer pretty bad. I'm not sure what else I can tell you.

[jeezlouise]

Gas has gone up 50 cents to a dollar in a few weeks' time, and people are already hawking their jewelry to score another fix and getting in fistfights at gas lines. But some have gotten even more desperate:

Praying for Gas

This seems to be "panic-lite" after a relatively modest increase in price... "the market" might be able to absorb the costs of gas shooting up to 7, 8 10 bucks a gallon, but can society absorb the panic-driven unrest of the working poor that it will bring, especially of those who believe that God is gonna bring back cheap gas?