[AndyA]

When planning for the future, it's helpful to have some idea of what the future may be. There doesn't seem to be much evidence for a fast collapse.
Peak oil is a process and it will be slow. Current oil production declines somewhere between 3-6% with guesses ranging between 2-10%. So even in a situation where everybody decided to stop drilling new wells, if we take a 5% decline then current production will still be around 50% of todays levels by 2030. Which is significant, but how likely is it that everyone would sit on their hands while oil production declines by 5% per year? More wells will be drilled, more resources will be used. Every effort will be made to keep production steady. LTO is a classic example of this, once price and technology aligned to make fracking viable a huge amount of oil has been produced in a very short time.
Proven reserves give a reserve production ratio of about 50 years. This is discovered oil that is economic to produce in the current economic conditions. There are yet more unproven hydrocarbons that could become economic if oil prices rise.
I think given the utility of oil to society, we can expect to see a lot more investment in production should oil production decline. While this may not stop the decline it will certainly slow the rate of decline.

[Pops]

A general argument against peak oil definitely doesn't belong in the forum dedicated to planning for PO, in fact the rules of the planning forum say just that.

[Pops]

if we take a 5% decline then current production will still be around 50% of todays levels by 2030. Which is significant, but how likely is it that everyone would sit on their hands while oil production declines by 5% per year? More wells will be drilled, more resources will be used. Every effort will be made to keep production steady.

More wells will be drilled only if the additional barrels produced are thought to be potentially profitable. To be profitable, the cost to produce the marginal barrel (that last extra barrel) must be paid by all buyers. It is what's known as marginal price, and it's how the oil market works. Again, the entire market must be willing and able to pay the higher cost for the last, additional barrel because every barrel is priced at that level.

Oil producers are looking for profit, not oil. If they can't make a profit, they will sit on their hands rather than knowingly invest in a money losing venture. The increasing cost of the additional barrel is rising dramatically. Nationalized and international corporate oil companies (IOCs and NOCs) have been spending huge amounts on exploration and development of new oil with little result and there is growing evidence they are coming to the end of their ability to continue.

(unfortunately 2007 is the newest info I can find from the EIA for real well cost - I guess the trajectory scared them so bad they just closed their eyes, LOL):




There is no doubt oil is valuable to society, 10 of the last 11 recessions have shown a correlation between rapidly rising oil prices and falling economic activity. When the cost of oil rises faster that the consumers' ability to adjust his consumption, he is forced to buy the oil and forego other spending until he can increase his ability to pay or reduce his oil consumption.

But the ability to pay as well as the practical ability to quickly reduce consumption is limited. Therein lies the problem with simply drilling more wells, the potential additional cost of the additional barrel is limited by the consumers ability to pay the additional price, regardless of the potential resource. Kopits asserts we are in a supply constrained market and the cost of oil in such a market can only rise as much as the combined increase in global GDP and efficiency. Obviously the increase in GDP and efficiency would not line up with increasing well cost as plotted above.

I'd add the price can in fact increase further, temporarily. But only at the expense of other segments of the economy. Of course that is a self reinforcing cycle of economic self-cannibalism: as other segments are starved of income, their ability to produce declines and so eventually total GDP declines and the ability of the total market to pay the increasing cost of oil declines as well.


So, no, it isn't a given we'll just drill more wells.

.

[Pops]

As mentioned, the thread was initially started in the Planning forum, which is for discussions of "doing Stuff" rather than speculating.

It was moved here to PO Discussion, which is for talking.

Catalog away.

[Paulo1]

re: Planning and Descent

I used to fly airplanes for a living; 10,000 + hours in the air before I packed it in. They had big radial engines...real gas guzzlers. And yes, they still fly them...just not me. Once in awhile, when I was busy with paperwork or looking out the side window I wouldn't notice the 'low warning light' blinking right in front of me. With a Beaver you had about 5 seconds to switch tanks before the engine quit and there was immediate silence. The passengers would wake up and I would laugh it off, quickly switching tanks and hitting the electric boost or hand wobble pump. It would start just as quick and away we would go. We might lose altitude, but usually didn't at all. I was only this complacent in cruise and at altitude....when the scenery and day dreaming took over. (I need to say I might have done this twice in almost 20 years of work. It was no big deal.) The big problem would be if you didn't catch the warning light after take-off, which I never did of course because the checklist is designed to make one be always being on the fullest tank at take off and landing. But sometimes other pilots didn't follow their checklists, or switched to an empty tank in the panic of the moment and SAR would go out looking for another missing plane. It happens. Other machines would blink a warning light for about 15 minutes, and you had to be deaf, dumb, and blind to miss it. In fact, we would often bleed out the emptying tank before switching over for weight and balance considerations or fuel management. In any event, the result was always the same. You either switched tanks on time or the engine quit. Sometimes you had lots of warning and sometimes you had seconds. If you switched to the wrong tank and you were too close to terrain, you died. It was all quite simple. All you had to do was want to stay alive and make the right decisions and you would probably be just fine; day after day until you hang it up.

This is absolutely analogous to the situation we are in. We have lots and lots of warning. The light is blinking. The effing fuel warning light is blinking and we are watching it blink and know that when it stops so does the machine of industrial civilization. We have some passengers sleeping in the back, oblivious....they are asleep. We have some other passengers blindly following authority thinking the pilots know what they are doing. They are simply in a place of blind trust. And then we have some others who are aware of what is going on and know what can happen. The smart ones know the pilot is keeping water under the floats and has some outs when the fan quits. The dumb ones don't have a clue.

Readers on PO.com are aware of the situation and have a pretty good idea of the 'possible' ramifications going forward. We can argue till the cows come home about when this is going to happen or how far the 'plane' can glide when the fan quits. You just have to decide whether you think this is the 5 second warning light or the 15 minute warning? The result is the same for the folks in the back.

As an aside, one day I was flying a load of folks over the Rocky Mt Trench, in northern BC. We were headed for town. One goof from St Louis was sitting up front next to me looking around and finally noticed that the nearest lake to land on didn't exist. I watched him looking at the rocks and peaks, and then he noticed we were in a single engine machine and he started to put two and two, together. Finally, he said on the intercom/headset, "say, Paul....whatta we goona do if the engine quits"? (For the unintiated this is not 'good form'. This is a question that is not to be asked and only the naive do so, for of course, there is not much one can do except glide to a spot that looks survivable.) I looked over at him and said, "I'm jumpin out and gettin' it over with right away, what are you going to do"? And that was the last I heard from him.

My question is this.....are we gliding yet, or is the warning light just blinking? Where do you plan on landing when the fan does quit? Me? I picked out 15 acres of field and woods with big gardens and a river full of fish. I have good neighbours able to pitch in and pull together. I have 6 years of heating under cover and stacked up. Regardless of the rate of descent, or the scale of the problem, we really have just one choice. Do you want to fly your own plane to the best of your ability or do you want to ride along with someone who looks like they might jump out because they are stupid and full of hubris? I know what I would do.

Regards....Paulo

[AndyA]

A general argument against peak oil definitely doesn't belong in the forum dedicated to planning for PO, in fact the rules of the planning forum say just that.

Hardly an argument against PO Pops.

[sparky]

.
You are right Andy , and Pops maybe not so right
I didn't see the thread as an argument against peak oil , more of a musing on the rate of it

the big problem is that the oil extraction industry has a scale of decades , while human attention span is in minutes
it result in obsessively poring over data , exclaiming over trivial squiggles and debating
spurious or incomplete information .

WE can discuss the various form PO will take

I've mentionned before the three typical curves

- the Cliff ......... a sudden breakdown of the international economic fabric ,
very low probability , government would resort to emergency powers and they have the Army and the ammo

- the glide ....... things go along as before , a bit poorer, a bit colder , every year ,
hardly likely , a democratic society would be stressed to breaking point , an authoritarian might manage better

- the stairs , a succession of crisis , with not so bad bits in between ,
or the natural progression of Homer Simpson down a cliff , bouncing up after hitting each ledges
the economists will be trumpeting "the economy bounce back "

Each country and region will have a different profile following their circumstances and national inclination

[AndyA]

My question is this.....are we gliding yet, or is the warning light just blinking? Where do you plan on landing when the fan does quit? Me? I picked out 15 acres of field and woods with big gardens and a river full of fish. I have good neighbours able to pitch in and pull together. I have 6 years of heating under cover and stacked up. Regardless of the rate of descent, or the scale of the problem, we really have just one choice. Do you want to fly your own plane to the best of your ability or do you want to ride along with someone who looks like they might jump out because they are stupid and full of hubris? I know what I would do.

A smart strategy Paulo, I've got 200acres in pasture and a few trees. I'm not entirely happy with it and may sell up an buy in a better area. More isolated, and more rainfall. I haven't given up my day job yet though, because I don't have everything I'd like to have yet. I'd say we are in a plane without a fuel gauge, some have jumped out already, some think the lack of a fuel gauge means we'll never run out, me I'll stay on this plane for the glide down, then when we are a couple of feet above the ground it'll be close enough to jump from there, LOL.

[AndyA]

There is no doubt oil is valuable to society, 10 of the last 11 recessions have shown a correlation between rapidly rising oil prices and falling economic activity. When the cost of oil rises faster that the consumers' ability to adjust his consumption, he is forced to buy the oil and forego other spending until he can increase his ability to pay or reduce his oil consumption.
quote]
Needless to say correlation isn't causation. I'm sure you could name a few commodities that had high prices preceding a recession. It's a logical condition that when times are good (as in preceding a recession) prices will be high through inflation for all number of goods, housing etc. Most recessions can be more easily explained by debt cycles, or the economic cycle then an increase in fuel costs leading to a 1% drop in discretionary spending. No doubt some recessions have oil price spikes, combined with real supply shortages as a contributing factor.

Kopits asserts we are in a supply constrained market and the cost of oil in such a market can only rise as much as the combined increase in global GDP and efficiency.

So the cost of oil couldn't be offset by a discretionary consumer having one less drive through at starbucks, or going to megamart weekly instead of daily? Consumers of oil have no flexibility, and can only pay more for oil if they get a pay rise?

I'd add the price can in fact increase further, temporarily. But only at the expense of other segments of the economy. Of course that is a self reinforcing cycle of economic self-cannibalism: as other segments are starved of income, their ability to produce declines and so eventually total GDP declines and the ability of the total market to pay the increasing cost of oil declines as well.

I basically agree, and it is reasonable to expect a decline in drilling if the price of oil were to drop, as demand drops because people realise they can drive less often with a tiny bit of extra planning. As a long term trend though it seems unrealistic to expect the world to reduce it's consumption every year without ever making adjustments to afford to pay more for oil. I'd argue people could pay a lot more for oil, without too much stress on the system. How much did prices rise by last decade, 4x, 5x? Now I realise people blame the rise in oil prices on the Great Recession, but there were a few other contributing factors, not the least of which was the lending of money for housing, to people who either couldn't afford to pay it back or didn't even exist. Now though, there is still plenty of money available to invest in profitable oil wells as your chart clearly shows.

[AndyA]

Japan is interesting, declining oil consumption yet a pretty much civilised non collapse type country.
http://www.eia.gov/countries/country-da ... ips=JA#pet
25% decline in 13 years.

[dolanbaker]

Japan is interesting, declining oil consumption yet a pretty much civilised non collapse type country.
http://www.eia.gov/countries/country-da ... ips=JA#pet
25% decline in 13 years.

It is one thing to have a decline brought (or imposed) by high fuel prices which force consumers to be more efficient in their use of oil and other fuels and another when improved efficiency will no longer allow BAU to continue as it has.

There is still plenty of "fat" that can be trimmed from the consumption figures before consumers are forced into really making either-or decisions, some countries like Greece have significant percentage of the population who are already fairly close to that point.

Sparky's staircase to hell is the most likely outcome, particularly when you consider that most people will cling on to BAU until they are forced to drop an expensive activity to enable them to afford the more basic essentials (to them) of life. For people in better off countries this is a long staircase, for poorer people of course it's much shorter, but eventually, an ever increasing percentage of the population will end up on the bottom step.

[Pops]

Sure sounds like a general argument against the effects of PO to me,
They'll just drill more
we'll just use less
30 years of stagnation in Japan hasn't been so bad
LOL

Most recessions can be more easily explained by debt cycles, or the economic cycle then an increase in fuel costs leading to a 1% drop in discretionary spending.

The cost of oil and it's rate of increase has nothing to do with the growth of the economy? (see Hamilton, 2011)

So the cost of oil couldn't be offset by a discretionary consumer having one less drive through at starbucks, or going to megamart weekly instead of daily? Consumers of oil have no flexibility, and can only pay more for oil if they get a pay rise?

LOL, that is the perfect argument against the argument you make immediately above: higher oil price causes decreased economic activity (recession).

I'd add the price can in fact increase further, temporarily. But only at the expense of other segments of the economy. Of course that is a self reinforcing cycle of economic self-cannibalism: as other segments are starved of income, their ability to produce declines and so eventually total GDP declines and the ability of the total market to pay the increasing cost of oil declines as well.

I basically agree, and it is reasonable to expect a decline in drilling if the price of oil were to drop, as demand drops because people realise they can drive less often with a tiny bit of extra planning. ..
I'd argue people could pay a lot more for oil, without too much stress on the system.

So drilling will decline if the price of oil were to drop because?

Because drilling is unprofitable. Which is exactly Kopit's argument from the supply side: drilling will/is declining because the cost of drilling is too high thus making drilling unprofitable.

Demand has dropped in the OCED continually for 7 years now. Yet the price of oil has stayed in a narrow band (at record levels) for 3 years - and if you smooth out the spike and crash of '08-'09 you could extend that average price back 7 years. Over that same 7 years the highest oil prices ever have not dramatically increased oil production, I don't know what could be a better argument against "they'll just drill more wells."

As a long term trend though it seems unrealistic to expect the world to reduce it's consumption every year without ever making adjustments to afford to pay more for oil. I'd argue people could pay a lot more for oil, without too much stress on the system.

Sure they'll adjust, given time, we just established that with higher prices they would forego Starbucks. We could argue it's value but regardless it is part of the "system."

Continually increasing utility is the only way to pay continually increasing costs on a continually decreasing supply (there is a thread on that idea called "the price of collapse"). But the upshot is one mans "waste" is another's necessity- forgoing Starbucks is essentially eliminating the coffee-maker's income, forcing down the overall economy and reducing the overall amount free to produce oil.

Now though, there is still plenty of money available to invest in profitable oil wells as your chart clearly shows.

Again, that is Kopit's whole point, "plenty of money" to throw down an unprofitable hole doesn't last forever and eventually "investment" will slow or halt.

Capex compression is a term we use to describe the reduction of upstream spending by the oil companies when their exploration and production costs are rising faster than their oil revenues. That’s what’s happening today. Hess is divesting oil producing properties to increase profits; BP has shelved the deepwater Mad Dog Phase 2 project in the Gulf of Mexico. This is occurring because oil prices haven’t been increasing, and costs have. So oil companies are looking at their portfolio of projects and deciding to postpone or cancel some of them. Were the oil supply rising quickly and oil prices falling, this sort of capital restraint would be normal—the usual boom-bust cycle of the industry. But oil is still in short supply, and very few of the large oil companies have been able to hold oil production over the last few years—even as they were investing massively in oil exploration and production. Now, they are actually reducing investment in upstream projects, even in the face of historically high oil prices and falling production. That’s capex compression.

You can simply wave your hand and say "they'll do something" and "it won't be that bad" if you like but the reality is oil is a business and business needs profit. When the price to produce is higher than the consumer's ability to pay, production stops.
.

[Pops]

I like the prosaic bumper sticker scenarios too; oh, it'll be like this or that, stair step down, degrowth, long emergency, transition, blah, blah. I've been in just that camp for a dozen years regarding PO because there was no near term indication of a reduction in investment which would lead to a large reduction in new production.

But that has changed.

Let me repeat Kopit's point because no one has addressed it:

[Oil Companies and IOCs for that matter] are actually reducing investment in upstream projects, even in the face of historically high oil prices and falling production.

http://peak-oil.org/dev/?p=11681


Here is the visual:




Here is the latest bottom line:


http://www.thonline.com/news/business/a ... c4935.html


Clicking your heels together and saying "slo decline, slo decline" over and over doesn't alter the fact that marginal oil is becoming unprofitable. OIil extraction is a money making business, not an energy making business. When the customer can't pay to produce the most expensive oil, production of that oil stops, if another producer of less expensive oil can't make up the shortfall, decline takes over.

Just that simple.
.

[dolanbaker]

Clicking your heels together and saying "slo decline, slo decline" over and over doesn't alter the fact that marginal oil is becoming unprofitable. OIil extraction is a money making business, not an energy making business. When the customer can't pay to produce the most expensive oil, production of that oil stops, if another producer of less expensive oil can't make up the shortfall, decline takes over.

Just that simple.

I would say that that statement actually reinforces the staircase of slow decline theory even more, if people can't /won't pay for it then they are forced to take a step down and the producers won't extract if the price stays low. Those who are prepared to pay extra will continue to have a supply until they are faced with the same predicament.

[Subjectivist]

Let me repeat Kopit's point because no one has addressed it:

[Oil Companies and IOCs for that matter] are actually reducing investment in upstream projects, even in the face of historically high oil prices and falling production.

http://peak-oil.org/dev/?p=11681


Here is the visual:




Here is the latest bottom line:

Oh #%+*=#%%#!!!!

The only hope I see is if governments decide energy production is the key to survival and hey pay for production despite the fact that it costs more than it returns. That might happen, but I doubt it would be a long term practice.

[Plantagenet]

Let me repeat Kopit's point because no one has addressed it:

[Oil Companies and IOCs for that matter] are actually reducing investment in upstream projects, even in the face of historically high oil prices and falling production.

http://peak-oil.org/dev/?p=11681


Here is the visual:


.

The US is about to become the largest oil producer in the world. This is not due to the efforts of the government or the oil majors or the IOCs but to small independent oil companies like continental Kodiak etc

[Lore]

Isn't this a bit like Dollar General picking up the scraps around Walmart?

[Pops]

I would say that that statement actually reinforces the staircase of slow decline theory even more,

I'm not arguing some "theory" or voting for a metaphor for some hazy future post peak world, I'm attempting to explain the fact that marginal production has become unprofitable in the last year or 2 and capital expenditures by the majors and some IOCs as well are declining.

That is the reality, not a theory, it is happening today. The obvious result if the trend continues can be nothing other than near term decline in production.

.

[Pops]

The US is about to become the largest oil producer in the world. This is not due to the efforts of the government or the oil majors or the IOCs but to small independent oil companies like continental Kodiak etc

The US has always been one of the world's top producers.

And the EIA says the US will resume decline in a couple of years after this latest peak.

And of course every bit of the increase (plus some of the amount US consumers can no longer afford) has been exported to the EU to make up for the decline of the N Sea.

So your point is?

[Quinny]

Pop's point is valid and depresses me.