Maass Article and Dr. Freakonomics

Macklad · Coal Joined: Jun 30, 2005 Posts: 4

I have read through the whole Maass piece on peak oil in the Sunday Magazine section of the NY Times. I have many thoughts but I'm just going to rattle off a couple of key points and then post a copy my letter to Dr. Stephen Levitt, author of "Freakonomics", who wrote a dismissive review of the article on his blog.

First of all, hats off to Maass for scoring the interview with Sadad al-Husseini, the ex-Aramco executive. I think we might finally have our credible Saudi insider who is not beholden to the Saudi government or any other interest group that I can see. His comments seem to suggest that the Saudis have a limit to their production somewhere between 12 and 15 mbd. If true, this means they haven't peaked yet, but really don't have much excess supply capacity. It seems Matt Simmons is pretty close to the scary truth without the inside information and al-Husseini just gave us the wink and nod that he is close. I look forward to Maass' full book and hopefully more public statements from Sadad al-Husseini.

Second, the implications of this article for introducing the concept of peak oil to the public should not be underestimated. While the Times certainly has its critics, it is still highly respected as the paper of record. While this will not be an instant revelation that will cause a massive popular response, it does represent a critical step in bringing peak oil out of the relm of "wacko" conspiracy & doomsday theorists and into more respectable circles of political and economic debate. This is a tool that should be used to at least raise conciousness in the general community. I urge all of you to read the article and pass it on to your friends.

Ok, now onto Dr. Freakonomics....who I am very disappointed in. Here's a link to his knee-jerk economic analysis of peak oil. I was appalled, but not really surprised. Here is the gist of his counter-argument:

One might think that doomsday proponents would be chastened by the long history of people of their ilk being wrong: Nostradamus, Malthus, Paul Ehrlich, etc. Clearly they are not. What most of these doomsday scenarios have gotten wrong is the fundamental idea of economics: people respond to incentives. If the price of a good goes up, people demand less of it, the companies that make it figure out how to make more of it, and everyone tries to figure out how to produce substitutes for it. Add to that the march of technological innovation (like the green revolution, birth control, etc.). The end result: markets figure out how to deal with problems of supply and demand.

That might work if we were talking about a commodity or manufactured good that had easy substitutes and was not the main foundation of our modern society. Here is my reply:

Dr. Levitt

I urge you not to make hasty comments about this subject without deeper analysis. Oil is not just a commodity, it is THE commodity that makes everything in our modern world possible, in particular food production and most forms of transportation. Barring some major innovation, there is no technology or energy source that can replace oil and it's many uses. It's like water and air. 6 Billion people need oil. 100 million maybe...

If you read the Maass article closer you will find that really the oil market right now suffers from gross price distortion (probably way too low) because of a dearth of basic data on reserves and a well by well analysis of production rates. This is why people like Matt Simmons have been crying out for more data. Until we have more data I don't think anyone should be complacent about oil prices moving slowly in any direction.

The problem is that we have invested Trillions of Dollars into an economic structure predicated on consistently low oil prices. We have trusted politically motivated leaders and economic interests that oil is plentiful and can meet an ever rising level of demand. If we had better data then the market could have continuously bid up the price as it became increasingly apparent that oil supplies were becoming scarce.

Instead we are left with a situation in which all of this will become apparent when there are real shortages which will cause a huge spike in prices and the Saudis simply cannot increase production to alleviate the shortage. Then the market will react with brutal efficiency throwing the economy into an economic depression. Will oil restabilize at a lower price? Perhaps. It depends on whether you think inflation will be the main effect or an economic collapse causing rapid deflation of asset and massive unemployment. Remember that everything is relative. If there is rapid deflation and massive unemployment, then $10/barrel may be unaffordable. Please research this subject more closely and come back to us with a more thorough analysis of the subject. It's only the fate of our economy and civilization that hang in the balance.

Maass piece

Peak Oil NYC

Doly · Expert Joined: Dec 03, 2004 Posts: 4035

whiteknight · Heavy Crude Joined: Aug 09, 2005 Posts: 281

Heard an interesting quote from an economist on NPR today. He basicly said when asked about Peak Oil "We will never run out of oil, we may just not want to use much of it when it hits $1,000 a barrel."

I think that is the major point we have to keep in mind. On another show they were discussion oil prices and most people who called in said instead of cutting back on driving they are cutting back on other things, long distance, cell phone minutes, cable, movies, eating out, etc... Those are easier to cut back on at this time than redesiging thier lives compleatly. The rising cost of gas simply has not gotten them to the point where they have to cut there. Give it another buck a gallon and we shall see how people and the market react.