[Tanada]

Here’s a thought: if we are going to focus on “plateaus” why not just stick with the one that’s of ultimate interest to everyone. As I just mentioned elsewhere except for us geogeeks very few folks care when PO happened, what the current US oil production rate is or isn't ’ going to be, how many more shale wells will be drilled, how much of our liquid fuels won’t be coming from crude oil, ELM, geopolitical upheavals, etc. etc.

Why not focus on the plateau that all those various and often difficult to decipher factors affect: price. Of course that leaves us with the constant question of defining “plateau”: is it a 10% window…20%. Ignore short term spikes…up or down? I’ll let other thrash that out. And then what price do we chart? Brent? WTI? Average price at the pump…in the US…elsewhere?

Probably doesn’t make a lot of difference. In the end we’ve been on a price plateau for a number of years IMHO. And appear to be staying on it at least in the near future. The nice thing about focusing on price is that it modulates factors like increasing oil production in the US from the shales. Increasing US oil production would be fantastic…even it hadn’t come about as a result of those higher prices. I think most have come to the obvious conclusion that the shales are not going to bring us back to the days of $40/bbl oil. This also brings up the puzzle: if US oil production is rising and demand is decreasing why do we still have high prices? We can debate that answer till the cows come home but it doesn’t change the fact that we are on a plateau.

I’ll let the charters do their thing. It would be interesting to see other metrics like US production rates, biofuel production, etc plotted on the price plateau chart. Might make clear some of those relationships we’re always debating.

ROCKMAN makes an excellent suggestion, I agree that the vast majority of people don't care a wit about anything but the price. They don't care why, how or who caused the price, they only care about the price. In the USA it is fashionable to blame the Big Oil forces or The Government administration for the price of oil when it is high and to ignore both of them when the price is low.

I stink at graph work but think ROCKMAN is right, a set of charts would be informative on these factors he lists off.

[mididoctors]

money is a problem because the changing price may not reflect how much money the average joe has in his pocket...

price as computed as average number worker hours per barrel is the droids we are looking for.

its going up, there is no plateau is my take. wage suppression is becoming quite noticable

[ROCKMAN]

midi - A valid point IMHO. But here you go: a great chart: plot US consumer purchasing power along with the price. Toss is earnings per hour and any other income metric you like. I suspect we would see an obvious relationship to the ramp up in the current price plateau. Which I suspect most would interpret the current price plateau to be a significant factor in our "GDP plateau". The price plateau is never going to be a stand alone metric but IMHO would serve as a very good base for the entire POD discussion.

[AgentR11]

I think focusing on purchasing power as opposed to a raw US$ value, or even with an inflator, is the way to see this. Take, generic kitchen staff making $10/hr, an hour of moving pans and knives around gets you a couple gallons of gasoline. Now roll back to that wage labor making $4/hr and gasoline was $1or so... Maybe not surprising, but you still walk away from that hour of labor with a couple gallons of gasoline.

To get a different result, I think you have to push way back before US peak production; and that tells you where the price plateau began, and helps get a time scale on exactly how wide this plateau thing is. Its hard to see forward though, are we near the end of the plateau about to take a harsh wake up call, or are we in the middle, with another four decades of technotopian luxury? No idea.

And that's where physical production maximums come into play; there still remains a *LOT* of room for desired demand to grow, especially in the sense of the number of people who intend to purchase some of that production. As total purchasing power available grows as a result of an increasing number of purchasers with sufficient funds, the only variable available to modulate realized demand is price. Measuring that price vs an individual's total purchasing power should enable detection of the edge of the plateau.

Jitter in the market makes this a bit challenging, and the use of a smoothing function on price will result in sluggish detection, so I think you end up having to make an art of detection, is that inflection on price jitter, or is it real?

[Pops]

But when you talk about relative price you also need to talk about relative expenditure. It goes beyond just gallons per average wage - you need to consider the other demands on the average wage. So back in '68 the average savings rate was over 10% whereas now it is variously -2 to +3 and the average debt percentage is 140% of income.

Then the average vehicle got 9MPG and the average home had no insulation. So not only are folks in worse shape from a fiscal resiliency standpoint, they are already driving a car that gets 20MPG and a house with R-19 walls and can no longer qualify for a mortgage closer to work.

In the long haul oil prices are elastic, at least in the sense that adjustments can be made, but in the short term there is only so much carpooling that can be done before the cost of gas begins affecting other discretionary purchases.

[ROCKMAN]

Pops - All good points. Which makes me like a plain vanilla price plateau plots even more. As you point there are so many factors that come into play. And factors that also change in their significance over time. IOW lots of potentially different explanations for changes (or lack of change) in the curve but at the end of the day it's still about costs.

[POBox]

I agree with Pops, there is less we can cut out by being frugal. Changing lightbulbs and adding insulation is cheap, but the next steps are not. Replacing a 9MPG car with a 25 MPG one saves a lot, but going from 25 to 30 has little effect.

I guess I wonder whether speculators or price elasticity affects oil price more. In my industry (high tech electronics) everyone has gone to just-in-time manufacturing. If your part is out of stock it could take 15-20 weeks to be replaced, and during that time the spot price goes sky-high. When we had months worth of inventory (back in the 80's this was common) we seldom had such a problem.

I know TWIP will tell how much crude is stored and in process, but not worldwide. How does one find out how the inventory days of crude? Something tells me it has a lot to do with price...

[AgentR11]

I agree with Pops, there is less we can cut out by being frugal. Changing lightbulbs and adding insulation is cheap, but the next steps are not. Replacing a 9MPG car with a 25 MPG one saves a lot, but going from 25 to 30 has little effect.

Replacing a 6 floz of gasoline 1 mile ICE run, with a 1 tablespoon of sugar/flour 1 mile bicycle run, has a substantial financial impact. But it'd turn a lot of our culture upside down, and not a gentle tipping either. So far, cultural resistance is too high, and fuel cost too low as compared with typical hourly wage rates, for that substitution to become common. I end up being out there with the poverty guys on walmart mtb's; racers on carbon wheels, and cars and trucks. Oddly, I like the cars and trucks much more than I like the prior two! $2500 racing bike & a $3 blinky. Man.... Wrong way/center lane riding on bikes that look ready to fall apart... (rant delete).

With cars, its that mpg ratio thing that really messes up the deal for folks that would change vehicles for economic reasons; the jump has to be from 25mpg to 60mpg+ to make all but the most extreme mileage drivers save money on an upgrade.

[Arthur75]

About the price plateau, one can think there is a maximum price further to which the economy goes in recession, consumption down, price down ...

Laherrère has a nice way of representing this :



The horizontal "wall" being the price wall, and the vertical one the "PO wall"(or max current production wall)

[Palpatine]

I agree with Pops, there is less we can cut out by being frugal. Changing lightbulbs and adding insulation is cheap, but the next steps are not. Replacing a 9MPG car with a 25 MPG one saves a lot, but going from 25 to 30 has little effect.

What about going from 25 MPG to not using any at all? Does that have any effect?

[John_A]

I agree with Pops, there is less we can cut out by being frugal. Changing lightbulbs and adding insulation is cheap, but the next steps are not. Replacing a 9MPG car with a 25 MPG one saves a lot, but going from 25 to 30 has little effect.

Which is why, if the question is how do I save myself from outrageous fuel prices, the answer is NOT buy another car, but to change ones behavior. Everyone should choose where they live carefully, because non-car solutions are a completely reasonable answer to the same question.

[POBox]

I agree with Pops, there is less we can cut out by being frugal. Changing lightbulbs and adding insulation is cheap, but the next steps are not. Replacing a 9MPG car with a 25 MPG one saves a lot, but going from 25 to 30 has little effect.

What about going from 25 MPG to not using any at all? Does that have any effect?

Sure, in terms of incremental cost. But the capital expense offsets that. When our last car died we compared what was available to us -- a one-year-old Honda Accord vs. a new Prius. Few used Priuses can be found, not sure why. The new Prius was $28K after all sorts of discounts, while a late model Honda was around $16K. Ignoring maintenance and cost of capital, and assuming the average MPG of 28 and 50, respectively, the Prius made economic sense if regular gas cost $7/gal or more. And it tied up an extra $12K worth of credit. In reality, the higher dealer maintenance cost of the Prius makes the deal even worse.

Going to an EV looks better as $/gal increases, and I'm sure I'll own one eventually. But you have to compare the total lifecycle cost. Right now, those energy slaves are still too cheap to ignore.

[ROCKMAN]

pstarr – Exactly. I was hoping someone would make the point as A. tries with his plot above and as you’ve done in text. By now we all should understand the history of recession and energy costs. Especially the feedback loops such as low prices decreasing drilling activity. The difficulty in presenting the relationship is the lag time factor especially with the price induced reduction in consumption. Today few are paying attention to the 75% decrease in rigs drilling for NG that we’ve experienced since supplies/prices are now adequate especially since our slow economic recovery isn’t ramping up commercial demand for NG.

Oddly one might take some comfort in what may be the pricing plateau we now seem to have even though oil is bouncing around record high averages. Higher prices longer term would drive recessions. Lower prices would reduce drilling activity especially in the oil shales. One might say the current plateau is a “sweet spot” in the POD. That doesn’t mean a comfortable spot for everyone, of course. But it is a period of relative stability. Prices spiking down would destroy $trillions in production equity much of which belongs to the US middle class. It would also induce hardships on the citizens of oil exporting countries that depend on the income to survive. Good for consumers but only in the short term: consumption would expand just as drilling activity crashed.

A spike up: consumption declines so even at the initial higher prices income of the producers would decline. But higher cost resources could be pursued. But if the growing demand destruction eventually collapses prices hundreds of $billion are lost by the producers (and their citizen investors) just as we saw in the shale gas bust in late ’08. And then we wouldn’t have those hundreds of billions bbls of Canadian, Bakken and Eagle Ford oil materializing as soon as many are counting on.

This wobbly fence we’re sitting might make us a bit anxious but we haven’t fallen off to one side or the other yet. It’s difficult for me to imagine any time in the next 30+ years that we’ll ever feel that we’re resting on solid ground. What we’re experiencing now may be as good as it gets.

[AgentR11]

Which is why, if the question is how do I save myself from outrageous fuel prices, the answer is NOT buy another car, but to change ones behavior. Everyone should choose where they live carefully, because non-car solutions are a completely reasonable answer to the same question.

TLDR: Bikes are technically possible, cheaper replacements, but remain outside of cultural tolerance for the time being.


While I don't disagree, two factors one should note.

1st, Most bikes get bought, ridden for 10-20 miles around the neighborhood, and then quietly moved into the backyard. At that rate, any bike, include a Walmart cheapie will be dollars/mile in expense.

2nd, via example, I use my bike for transportation purposes, I don't race, but I do about 4,000 miles /yr. My bike, including paniers, racks, lights, batteries, replaced wheels, breaks, tires, tubes&patches, clipless pedals and shoes, etc comes in just under $2,000. If I get five years of life out of it, that is still 10 cents/mile. Fuel, is about a penny / mile as well. (To compare closer apple/apple, the electronics and sensors should be added, BT stereo, gps mapping, mounting and power hardware, cadence, speed, HR monitoring... adds another grand or so, still cheaper than car of course, no more necessary than a tachometer, but they come with the package as it were.)

The real disservice comes when you tell people they can replace real powered transportation (car,truck) with a bicycle, and then say the bike is nearly free. If they choose a nearly free bike, they won't put any serious mileage on it, in which case, they might as well just have walked, and saved themselves from an odd looking backyard ornament.

Now, I suppose that is all well and good if you desire to reduce people's freedom of movement, as opposed to honest replacement; but I'm not interested in people telling me I can't go somewhere simply because I do not wish to use an ICE or airplane.

Behind it all though, to cover real mileage on a bike, you have to push, when you push yourself, most people experience something akin to "pain". Personally, I don't think this is real pain, as much as it is a signal in your brain that is meant to discourage unnecessary vigorous expenditure of energy, but most are not going to apply that sort of logic to what they feel. Thus, the first time they say, "hey, people ride these things across country, surely I can ride to the next town to pickup some fresh blue crab", they try it, and experience the same discomfort they noted when their PE teacher made them run laps. On returning home, the bike takes up permanent residence in the back yard, and they find another way to do serious transportation. No sense pretending otherwise. The price of fuel will have to be much higher to overcome this reluctance; but it is a reluctance of choice, not impossibility.

[Subjectivist]

I think the price is a reflection of how weak the economy is, if people could afford more the price would go up. As it is the price is economically self limiting, if enough users come along who can pay $125.00/bbl then the price will rise to that level. Right now buyers drop out every time the pice rises a little so supply is price balanced with demand.

[ralfy]

Here's something to consider from The Automatic Earth: "Oil and Credit"

http://theautomaticearth.com/Finance/oi ... redit.html

That is, one notes

- the marginal cost for extracting a barrel of oil

- the amount of credit created vs. economic growth, and note the marginal amount of credit for each barrel of oil

then bring in other factors, such as the amount of additional oil needed to meet economic growth (e.g., assuming demand has to go up around 2 pct a year), decline rates for non-conventional production, etc.

[Keith_McClary]

money is a problem because the changing price may not reflect how much money the average joe has in his pocket...

price as computed as average number worker hours per barrel is the droids we are looking for.

its going up, there is no plateau is my take. wage suppression is becoming quite noticable

Another measure would be the number of person-hours that goes into producing a barrel and getting it to market. Not just direct employment in the oil industry, but also including manufacturing the equipment, pipelines, etc.

Of course this would be difficult to calculate, with uncertainties about what to include (as in EROEI calculations).