[Pops]

Just like Yergin always says, There's plenty of oil out there...

A sustained slump in oil prices and continuing economic woes puts at risk new oil sands projects key to the Canadian and Alberta economies...

While oil sands companies say they make their decisions based on forecasts stretching decades ahead, new projects could be in trouble if prices fell to below $80 and stayed there for a prolonged period.“Eighty bucks tends to be that mark where some of those new projects do become uneconomic,” said Todd Hirsch, a senior economist at ATB Financial in Calgary. “There might be some of those that end up being postponed [or cancelled]. … That’s the tipping point for a lot of projects.”

http://m.theglobeandmail.com/report-on- ... ice=mobile

This is really the crux of the situation isn't it?

The basis for optimism from people like Yergin is that the economy will get used to oil at $80+ and everything will be fine.

The problem of course is after another year or two or three of 5%/year depletion in existing fields, $80 oil won't cut it either and we'll need to go to the $90/bbl method.


--
So where is the limit?

I've read that people now have a preference for close-in 'walkable communities' when the are looking for a home and the slight uptick in US car sales is in higher MPG vehicles. People are spending less on stuff (even thought they are borrowing more the last little bit). But the long worried question is can they change fast enough to keep the economy going?

[sjn]

As I mentioned in another thread, externalities will eventually catch up with us, what seems affordable suddenly isn't because the economic model we use hasn't mapped well to reality. The immediate fall in the price of oil represents the un-usefulness of money to "invest" in (potential financial-loss-making) unconventional production, it's all really just a mirage, it doesn't matter whether the price is currently rising or falling, extreme volatility means the price becomes an unreliable indicator of risk.

[evilgenius]

Cheap gasoline was one of the things that allowed the American economy to prosper during the housing boom. All kinds of feedbacks did not have to exist as long as self-employed construction workers etc. could cut their costs in this way. The vast majority of people actually saw their real wages decrease relatively from the 70's onward. Once the price of gas began to encroach upon what little margin people had for either eating or paying their mortgages, though, the problems began to show with that model. Any nostalgic effort to re-establish things as they were will only expose the US economy as badly to the next shock. If America does not begin seriously to develop a more resilient model then it will only have some form of multi-decade whoring off of its built up surpluses to fall back on. At some point the testosterone driven 'common sense' mindset has to be faced and recognized for the failures that it actually engenders and the ruination that it creates.

[Timo]

Cost, in reality, has much less to do with the transitions ahead of us than most people think. To exemplify this, look at the telephone. Technology has gone into outer space in this area and people flock to cell phones and smart phones because they're "new," they work better, they do more than the telegraph, or the land-line telephone, or the CB radio, or the tin cans and string. Cell phones also cost more to the consumer than any of these old, outdated technologies, partly because they do more than any of the old technologies, but also because people are excited by the new technology, want to try it, to possess it, and we are all willing to pay a little more to get that personal joy and satisfaction of holding the newest, best gadget in our own two hands that the market has yet produced. I want a Tesla Model S real bad, and it's just a couple grand ($20,000) out of my price range. But that's the beauty of the competitive market place. Technology builds on itself, and before too much longer, the market will have a 300 mile PEV available in my price range. The market will eventually have PV solar arrays customizeable for every house that wants one. Change happens, but unfortunately, there's a little bit of Varuca Salt deeply embedded into the human race that makes us want everything NOW! The cost of advancing technology didn't stop Steve Jobs, though. And his marvels and successes didn't happen overnight.

Sorry for this rant of optimism, folks, but i look outside my window right now, and the sun is shining bright. Plus, it's Friday! Sorry Kiwis. Us Yanks are always a day behind in everything we do.

[The Practician]

Cost, in reality, has much less to do with the transitions ahead of us than most people think. To exemplify this, look at the telephone. Technology has gone into outer space in this area and people flock to cell phones and smart phones because they're "new," they work better, they do more than the telegraph, or the land-line telephone, or the CB radio, or the tin cans and string. Cell phones also cost more to the consumer than any of these old, outdated technologies, partly because they do more than any of the old technologies, but also because people are excited by the new technology, want to try it, to possess it, and we are all willing to pay a little more to get that personal joy and satisfaction of holding the newest, best gadget in our own two hands that the market has yet produced. I want a Tesla Model S real bad, and it's just a couple grand ($20,000) out of my price range. But that's the beauty of the competitive market place. Technology builds on itself, and before too much longer, the market will have a 300 mile PEV available in my price range. The market will eventually have PV solar arrays customizeable for every house that wants one. Change happens, but unfortunately, there's a little bit of Varuca Salt deeply embedded into the human race that makes us want everything NOW! The cost of advancing technology didn't stop Steve Jobs, though. And his marvels and successes didn't happen overnight.

Sorry for this rant of optimism, folks, but i look outside my window right now, and the sun is shining bright. Plus, it's Friday! Sorry Kiwis. Us Yanks are always a day behind in everything we do.

Costs, in reality, have much more to do with the transitions ahead of us than most people--not most peak oilers-- think. A lot of people are unable to wrap their minds around what I consider to be the obvious contradiction here, so let me spell this out:

Cellphones/GPS etc. are more expensive than landlines. PERIOD. In real terms, a very large majority of our technology has been becoming more expensive in real terms as time goes on. For example Communications technology takes up a far bigger portion of our budgets than it did 50 years ago. The fact that we have been able to build this mind bogglingly complex telecommunications web has little do do with the fact that it is "better" technology, and everything do do with the fact that we had the energy to do it, and were able to afford it, but only because we deferred so many costs to the future. Same goes for cars. Cars are far less affordable than they used to be. These days, they all come loaded to the hilt with massive ammounts of expensive technology, and people go into far more debt as a percentage of income to pay for the privilege of driving. Where the heck do you think the debt overhang came from?

The main Idea to grasp is this: The majority of technological progress is, in fact, an illusion created by an expanding energy supply. Moving into the future, certain high tech products are not going to go down in price as so many people think they are going to.

[anewland]

I think we must look at the "Oil Expense Indicator" (OEI) (the measure of economic damage incurred by "expensive" oil (greater than 4% of GDP)) to understand the relationship between low-eroei difficult-to-procure-fuel (deep water, tar sands, biofuels, etc.) and the current financial crisis. The OEI varies from country to country, so heavily suburbanized USA will suffer at $80, whereas mostly-rural China can handle $100.

The OEI is gaining recognition in the mainstream press. Here are recent examples, collected today at the Oildrum;

Does Expensive Oil Inevitably Cause Recession?
Why is it so tricky to define ‘peak oil’?
Does Expensive Oil Inevitably Cause Recession?

That the mainstream press is connecting the dots--declining light/sweet onshore crude stocks, low-eroei alternatives, economic crisis--points to a very serious tipping point; much more important than merely the technical instant of "peak."

[Outcast_Searcher]

Cost, in reality, has much less to do with the transitions ahead of us than most people think. To exemplify this, look at the telephone. Technology has gone into outer space in this area and people flock to cell phones and smart phones because they're "new," they work better, they do more than the telegraph, or the land-line telephone, or the CB radio, or the tin cans and string.

Electronics are the exception to the rule. With Moore's law, yes, assuming we can work through all the security issues (which seem to progress with a frightening Moore's law in seriousness and pervasiveness themselves), electronics allow for stupendous progress, and at lower cost. Since the main product is really electrons -- there is also plenty for all as long as power is available for the electricity, and to manufacture and ship the stuff.

With physical resources, such as energy (including oil), building materials, food, etc., while there is certainly progress, it is most certainly NOT exponential.

However, population growth in the third world and much of the second world IS exponential, thus the BAU growth problem. Plus, people's appetites for
"more" no matter how much they have are seemingly (almost) universally insatiatable.

No doubt, things like hybrids, plug in hybrids, pure electric cars, and improvements in components like batteries and capacitors that make them possible will help greatly in the first world (assuming a viable economy remains to let the vast majority of folks AFFORD them -- which is by no means assured).
In the first world, we might even realistically achieve a roughly stable net energy demand situation, if the cost of energy is taxed to (or reaches) some minimal level to constrain endless marginal demand.

However, the net demand increase for energy and commodities from the third world population growth AND appetite for the poor to join the middle class is causing a MASSIVE amount of apparently exponential growth, as far as the eye can see. Chindia alone has eight times the population of the U.S., for example.

Example: My next car will certainly get from two to (say) eight times the mpg equivalent of my current one, depending on what I choose. Dandy. BUT, during the (say) decade I own that car, for each first world citizen like me there will be MANY third world families clamoring to get cars vs. bicycles, better housing, eat meat instead of grains, and have all the other trappings of middle class living they can obtain as well.

Outside of special cases like electronics, expecting technology to magically keep up with this pace of net resource demand and all the externalities that come from that resource consumption -- given the track record of the past couple of decades, is as delusional as expecting unicorns and yelling at employers to solve the world's economic problems.

[prajeshbhat]

Electronics may not be an exception. The microprocessors may have been miniaturized, but the process for manufacturing microprocessors has become far more complex and expensive. Try making a microprocessor in your backyard from scratch. The reason electronics is cheap is because it has manufactures in very large volumes.
However, it takes a global supply chain and hundreds of millions, even billions of dollars to manufacture a modern microprocessor. It also requires thousands of highly trained engineers and researchers to do R&D in order to make marginal improvements in the existing microprocessors. And it also costs billions.
If Joseph Tainter is to be believed, the ROI of computers is on a decline.

June 1991
Name of Processor: 486
Clock speed: 50 MHz
Number of transistors: 1,200,000

March 1993
Name of Processor: Pentium
Clock speed: 60 MHz
Number of transistors: 3.1 million

March 1994
Name of Processor: Pentium
Clock speed: 75 MHz
Number of transistors: 3.2 million

March 1995
Name of Processor: Pentium
Clock speed: 120 MHz
Number of transistors: 3.2 million

June 1995
Name of Processor: Pentium
Clock speed: 133 MHz
Number of transistors: 3.3 million

January 1996
Name of Processor: Pentium
Clock speed: 166 MHz
Number of transistors: 3.3 million

June 1996
Name of Processor: Pentium
Clock speed: 200 MHz
Number of transistors: 3.3 million

May 1997
Name of Processor: Pentium II
Clock speed: 300 MHz
Number of transistors: 3.3 million

April 1998
Name of Processor: Pentium II
Clock speed: 400 MHz
Number of transistors: 7.5 million

August 1998
Name of Processor: Pentium II
Clock speed: 450 MHz
Number of transistors: 7.5 million

August 1999
Name of Processor: Pentium III
Clock speed: 600 MHz
Number of transistors: 9.5 million

October 1999
Name of Processor: Pentium III
Clock speed: 733 MHz
Number of transistors: 28 million

January 2000
Name of Processor: Pentium III
Clock speed: 800 MHz
Number of transistors: 28 million

March 2000
Name of Processor: Pentium III
Clock speed: 1.0 GHz
Number of transistors: 28 million

November 2000
Name of Processor: Pentium 4
Clock speed: 1.5 GHz
Number of transistors: 42 million

April 2001
Name of Processor: Pentium 4
Clock speed: 1.7 GHz
Number of transistors: 42 million

Aug 2001
Name of Processor: Pentium 4
Clock speed: 2 GHz
Number of transistors: 42 million

Jan 2002
Name of Processor: Pentium 4
Clock speed: 2.2 GHz
Number of transistors: 42 million

Jun 2002
Name of Processor: Pentium 4
Clock speed: 2.53 GHz
Number of transistors: 55 million

Aug 2002
Name of Processor: Pentium 4
Clock speed: 2.8 GHz
Number of transistors: 55 million

Nov 2002
Name of Processor: Pentium 4
Clock speed: 3.0 GHz
Number of transistors: 55 million

Jun 2003
Name of Processor: Pentium 4
Clock speed: 3.2 GHz
Number of transistors: 55 million

Feb 2004
Name of Processor: Pentium 4
Clock speed: 3.4 GHz
Number of transistors: 55 million

July 2006
Name of Processor: Core 2 Duo
Level 2 cache 4 MB
Number of transistors: 253 million

Nov 2006
Name of Processor: Core 2 Extreme QX6700
Level 2 cache 8 MB
Number of transistors: 582 million

Notice that a decade ago we used to see a new version of microprocessors every 6 months to 1 year. But it has somewhat stagnated since 2002. A multi-core is a combination of Pentium 4's. Not a huge breakthrough. And we haven't seen much since 2006.

[Sixstrings]

Notice that a decade ago we used to see a new version of microprocessors every 6 months to 1 year. But it has somewhat stagnated since 2002. A multi-core is a combination of Pentium 4's. Not a huge breakthrough. And we haven't seen much since 2006.

I don't know, Moore's Law looks to be on track:

http://en.wikipedia.org/wiki/File:Transistor_Count_and_Moore%27s_Law_-_2011.svg

We're awaiting a major breakthrough.. whether nano, quantum computing or organic.. when that happens there will be a huge surge at once, breaking through to a whole new level and breaking Moore's Law -- on the positive side. Don't want to sound cornie but that's my prediction.

[radon]

...
We're awaiting a major breakthrough.. whether nano, quantum computing or organic.. when that happens there will be a huge surge at once, breaking through to a whole new level and breaking Moore's Law -- on the positive side. Don't want to sound cornie but that's my prediction.

Any more predictions regarding fusion reactors then?

[evilgenius]

I brought up the cost of gas as a means to refer to the situation of the average person in the economy. They found, and still find, themselves under a lot of obligations as a matter of course and not making any more money to pay for those obligations. Cheap gasoline has been a way that Americans could engage in economic activity with a measure of subsidy on their side. Like choosing to opt out of the insurance game, eating out or going to the movies it has been a staple of the matrix that Americans have used to make ends meet. Obviously those shuffling this deck were more likely to be employed as 'Independent Contractors' or small business owners or the equivalent, but not in every case. They could be people making hourly wages. High gas prices effected very many people who had obligations that amounted to a fairly large percentage of their incomes. They no longer had the money to cover their obligations and had to let something slip. For those who were categorized as sub-prime and had expensive mortgages it looks to me as if they decided that it was their mortgage that they would let slip.

The reason I bring this up is that I feel that something very important is getting missed amongst the many conversations going on about the economy. I feel that people are missing the fact that wages had not been rising at nearly the rate that the boom would have suggested. While CEO's and other executives were seeing their incomes skyrocket people who earned what I call here 'wages' were making do with an actual decline relative to the expansion, in some cases a decline period. Many, many people borrowed to make up for this decline. They did not in all cases borrow to live extravagantly. Anyway, I bring this up to suggest that the economic philosophies that permeate American culture allowing a decline like this to take place over many decades, since before Reagan, ought to come under scrutiny. I feel that while it may not be the most important thing, it is the most forgotten thing in all of this. I feel that many who bring up this or that conspiracy conveniently look past this. I feel that many who nostalgically desire some form of yesterday do too.

[Pops]

I feel that people are missing the fact that wages had not been rising at nearly the rate that the boom would have suggested. ...
Many, many people borrowed to make up for this decline....
I feel that while it may not be the most important thing, it is the most forgotten thing in all of this.

Agree.



The RE boom was hard on the heels of the .com bust and no wonder, incomes were declining and suddenly there is this free money falling out of the rain gutter. the only increase was in '06-'07 when things really got crazy. The chart shows the problem with reading the chum headlines at the WSJ (repeated daily in the "Recovery" thread here) instead of simply looking around.


This is the wedge we're trapped in, economy capped at around $100/bbl and increasing extraction costs continuously rising as expensive oil replaces cheap...

[peripato]

I feel that people are missing the fact that wages had not been rising at nearly the rate that the boom would have suggested. ...
Many, many people borrowed to make up for this decline....
I feel that while it may not be the most important thing, it is the most forgotten thing in all of this.

Agree.



The RE boom was hard on the heels of the .com bust and no wonder, incomes were declining and suddenly there is this free money falling out of the rain gutter. the only increase was in '06-'07 when things really got crazy. The chart shows the problem with reading the chum headlines at the WSJ (repeated daily in the "Recovery" thread here) instead of simply looking around.


This is the wedge we're trapped in, economy capped at around $100/bbl and increasing extraction costs continuously rising as expensive oil replaces cheap...

-----------------------------------------------------------------------------------------------------------------
And we haven't even started with actual physical shortages yet. But the peak oil clock's a-ticking...a few more years left...then the long, remorseless decline...

[evilgenius]

Yes, it's that long remorseless decline that we need to worry about. The recession has clouded the timeframe that graphs put together before hard times came about would suggest, but by only so much. Still, I suppose when in 2012, or soon thereafter, production doesn't immediately drop off of a cliff the skeptics will charge in claiming that the lull debunks the expectation. I wonder if the model for depletion hasn't now become that of the whip, which delivers concentrated force because of the sudden take up in a vast amount of slack?

By not engaging in reforms that change the basic way that the system operates and instead using the mechanism of letting the economy self-recover we may be inviting the whip. One can only hope when it cracks it's going to be more like a high school gym boy cracking a towel. I don't really think so, but I want to be optimistic.....

[Pops]

Thanks for bringing this back up evilG.

I saw a good chart Gail put up over at Finite World that illustrates what I expect to see happen when the economy starts contracting:



That is private sector debt and it is shrinking for the first time since WWII. I don't know if it is shrinking because it was a bubble too large and is in reset mode or because government borrowing has become such a large part of GDP (or perhaps that GDP is simply a worthless indicator of anything) but this is a sign to me that the economy has reached some threshold.

Average incomes are falling, people are de-leveraging and oil prices are up at least $2,500 for the average household. So what are the indications we can afford $100 oil for any length of time?

[evilgenius]

I think the indications are poor that we can afford $100 oil for any extended period of time. I am a deflation minded person these days when it comes to economics. That simply means that I see the dollar gaining in strength at the same time as the amount of dollars in the money supply decreases. Since money is created by debt, that's right, the above chart is deflationary. On its own it doesn't prove anything, but added to many other things it provides reason to stay vigilant regarding deflation. As far as oil being affordable simply because its nominal price drops significantly, I'm not saying that at all. Oil could actually cost much more at $30 a barrel in a deflationary economic environment than it would at $100 + in this current one.

[TheAntiDoomer]

Jimney Christmas Pops, you worry too much. It's inidan summer outside, go have some fun, go have a cold one on me, relax

[Cog]

WTI price $96.45/bbl
Brent $115.42/bbl

Back into doom land we go.

[The Practician]

http://www.energybulletin.net/stories/2 ... production

This article ran a couple of days ago over at Energy Bulletin in response to Chris Skrebowski's on "economic peak oil"

Apart from the mis-characterization of peak oil as having two forms--The economic peak IS the geologic peak, dummy-- He makes the reasonable argument that we will, in fact, use expensive oil sources such as tar sands, to perform the more essential economic functions for oil such as food production, essential transport, and heating. In the Long run, I tend to agree, but I can't say I believe there is much chance of us getting "there" from "here" without some serious turmoil.

[Bruce_S]

http://www.energybulletin.net/stories/2011-11-08/will-%E2%80%9Ceconomic-price%E2%80%9D-limit-oil-production

This article ran a couple of days ago over at Energy Bulletin in response to Chris Skrebowski's on "economic peak oil"

Apart from the mis-characterization of peak oil as having two forms--The economic peak IS the geologic peak, dummy-- He makes the reasonable argument that we will, in fact, use expensive oil sources such as tar sands, to perform the more essential economic functions for oil such as food production, essential transport, and heating. In the Long run, I tend to agree, but I can't say I believe there is much chance of us getting "there" from "here" without some serious turmoil.

i think that the turmoil over the past 5 years (the same turmoil that Deffeyes was worried about which has occurred since peak oil happened in 2005) might be that "serious" turmoil. Think about it for a second, the world for some 6 years now has had no increase in crude oil production. Prior to that, it had been growing at about 2% a year, since the crude oil crisis of the late 70's and early 80's. Prior to that, it had been growing even faster. So what we have already lived through could easily be the "turmoil" needed for people to pay attention, build Volts and understand how we need to electrify transport, conserve and use less, etc etc.