Talk from a rock guy

Normally I prefer to post on the events that are carrying us inexorably forward, but cannot resist the urge to respond to the recent article by Econbrowser that Prof G cited. Given that I am prone to the odd comment on economists, and, with your indulgence, let me try and respond to some comments in that post.

To begin with
Suppose you told me that … you were certain that annual oil production was just about to plummet, and would be 30% below its current level in two years. …… I would say that the first thing we should do is curtail current oil consumption drastically. Oil is going to be an incredibly valuable commodity in two more years, and we've got to stop wasting it now. By leaving more of the oil in the ground now, we could stretch out the time available to us for developing alternative sources from oil sands and coal and to make radical changes in our transportation systems. And we would need to start immediately making huge investments in those alternatives.
Well the initial problem is not that oil will all drop that much, but we do know that oil production is dropping more than 10% a year in a number of fields, and by varying percentages in most countries that are now producing oil.

Secondly with an entire world economy running on oil, turning around and saying "excuse me chaps, I am going to cut your supply this year since we need to conserve" is a likely way for governments that need to spend that money now on current budgets to have a very short term in office. If not because of revenue problems then from the calamitous effect that this will have on their economies. Economies are currently built on a continuing income from oil, one cannot currently survive a dismount from this running tiger.

In regard to the need to invest in new technology, way back when there was an Energy Crisis in the past the United States Government was motivated to start a lot of programs that looked into alternative sources of oil and energy, including DoE. Just as some of those went into field production evaluation, the price of oil was dropped to a point that the short term benefit of those programs could no longer be justified. They died, and since a generation has passed most of that knowledge is gone.

This time around there is not going to be enough oil available to drop the price below that at which these new ideas might be competitive, but as we have discussed before you can't have a baby in a month by making 9 women pregnant, and there is a long lead time before they can have significant effect. In the meantime oil prices will continue to go up either steadily, or in bursts, depending on the relative perception of the different news stories that come out. Yes it is time to invest in alternate technologies, just don't expect that they will impact the oil market this decade.

Then we come to the bit that says
consider what would happen if the government doesn't make any policy response. Oil is going to become extremely valuable under this scenario in a very short period of time. Let's say for discussion we're talking about $200 a barrel two years hence. Then I would like to make the observation that, if the facts were indeed as we just conjectured, oil surely could not continue to sell for $60 a barrel today. Anybody who pumps a barrel out of a reservoir today to sell at $60 could make three times as much money if they just left it in the ground another two years before pumping it out.
Ah! Well you know what? If someone has invested $1.2 billion in putting in an oil complex that will generate 200,000 bd at $60 a barrel, I can't see them waiting 2 years to start recouping their investment, even if they know that the price is going to go up to $200 a barrel in a year. Why not? Well, in part, because the well will still be producing something like 200,000 bd next year and so they will reap that reward then, and still get an immediate return on their investment today. (And few folks think far enough ahead to the time that the well will start to run dry).

Oil wells are not, individually, resources that are expected to disappear within six months of being developed (although some do, and there are some being put into the North Sea now that have an expected life of about 3 years). Rather most wells are expected to last for a period of years, and thus the gain will continue to grow as the price goes up, but we still need the immediate return to pay for the increasingly expensive cost of the drilling system (look at the cost and complexity of Thunder Horse for example).

The bit that says
This particular understanding of the natural consequence of profit-seeking behavior is I think the heart of the issue that needs to be addressed in order for economists and noneconomists to understand each other on this issue.
Leads me to suggest that the scale of these numbers is perhaps misunderstood, in a way that is caused by the price of an individual barrel of oil. One needs to be more appreciative of the more realistic case. If you have an oilwell that is producing 6,000 bd at $60 a barrel that is $360,000 a day. Expecting anyone to wait around to make $1 million a day a year or two from now seems to be rather unrealistic.

In the end I fear that we are still talking different languages and about different perceived situations. And, unfortunately, there are more economists out there who do not understand the true situation, but are willing to go on the talk shows and comment anyway than there are geologists or petroleum engineers that can be either found, or bothered to refute them. And as a result the general public will not be sufficiently warned in time, and will not appreciate the scale of the problem until after it has arrived.
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There was an interesting stock trading experiment done at UCLA - over 10 years ago, where the stocks traded were oil company stocks, and the oil reserves of each company, and the rates of production and depletion were all known by the participants. The participants were all Business school students. The result was that the company stocks were sold at an increasingly higher price until the final sudden collapse. And there wass absolutely no linkage between a company's stock price and its known reserves or depletion rates. Market psychology was driven purely by short term decisions, which in this case was "how do I make a profitatable trade." Very different from how economists say the market works.

This experiment took both the participants and the people conducting the experiment by surprise. But then came the Enron debacle -- a purely trading company -- and the results were very similar!

Well, from the conversation that's been going on in these two posts on the Econbrowser piece, it seems obvious even to an economic illiterate what's going on: the argument makes no sense because no one is going to wait 2 years for a higher return on their investment when they can get a reasonable return now. In 2 years some new investment will come along to keep them occupied, and in the meantime they've made some money.

Furthermore, Econbrowser says this: "Anybody who pumps a barrel out of a reservoir today to sell at $60 could make three times as much money if they just left it in the ground another two years before pumping it out."

Correct me if I'm wrong, but if everyone up and decided to leave all the oil in the ground for 2 years, then I'm guessing that the $200/barrel prediction goes right out the window. Again, then, the argument just doesn't make sense.

First of all let me thank Heading Out for the best and most relevant analogy I have heard regarding technology adaptation. The pregnancy comparsion does show that things take time and if you have't started on a five year project today, it won't be done in one year - no matter how great the price signals.

However, I think the point of the Econbrowser post - and one of the reasons it was such a great link for The Oil Drum to make - is not that economics can somehow answer every question or point to an exact truth. Rather, it provides a new set of data and a different framework to look at things.

I tend to side with Econbrowser over ianqui on the issue discussed above. An investor expects a roughly 10% return on the stock market. Sometimes, it's up, sometimes down, but over any given period of time over the last 70 years, 10% is about what it has produced. If that same investor thinks it is certain that oil prices will go up 30% in two years, they will buy oil futures as this is a level of return not typically available to them. This doesn't depend on complex theory or sophisticated markets. Refineres and other energy related businesses presumably have better access to information than average people and the fact that they have not bid future prices up much above spot, does give a pretty solid indication that they don't think prices will be that much higher.

Regarding the second point, I also think Econbrowser has a strong case again. If Saudi Arabia knows its oil is running out and prices will shoot up they are better off storing (hoarding) it until the time when the price is higher. This is true also for private companies and certainly for countries like Iran that are sitting on piles of cash and don't need to do our bidding. If I had a thousand barrels of oil in the ground under my house, and I thought prices would be much higher in one year, I would wait one year to pump and sell.

It is also worth noting that prices are far higher than they were just a year ago. No one seems to have trouble believing that this indicates an impending shortage. So you do seem to agree with at least a part of economics

I think the point that Rajiv and other make is valid. Markets aren't always rational and people have been wrong a lot. But I do think that future prices will reflect increased oil prices in advance of spot prices and will send economic signals that help to smooth adjustment.

This does not mean the adjustment will be smooth. As Heading Out implies, one year of warning doesn't isn't going to change everything when adjustments take many years and may not be doable in any case. Gold has been expensive for thousands of years and we haven't been able to just find more gold.

But that doesn't mean it makes sense to completely discard economics just because it provides one data point that doesn't show what you want it to show.


I think, Jack, that you missed a couple of my points,
a) if you have made an investment in getting to the oil of hundred's of millions of dollars you expect a return on your money as fast as possible. To expect otherwise, particularly as, in the Saudi case, you know you have lots more oil in the ground is, I believe, unrealistic and doesn't understand how hungry investors are for a return.
b) you again don't grasp the scale issue. We are not talking about a thousand barrels under your house, nut rather several million. If you are going to extract this at say 500 barrels a day and the reserve is going to last for say 8 years at that rate, would you care whether you started pumping tomorrow or next year, given that you can both have production this year and next. (What you lose is production 8 years from now and most folk won't look that far into the future).

Can anyone shed light on the effects of oil producer withholding production for when the price goes higher (as suggested), which in fact could cause the price to go higher faster (due to market shortage), which then may lead to economic disruptions, which then may lead to reduced demand, which then may lead to lower prices again so the whole cycle can restart. All the meanwhile, no solutions would have been found due to the economic disruption. Is this a realistic scenario of delayed production for higher profit taking?

Honestly, I still think this is more a case of discarding inconvenient facts than actually wrestling with the issues. When the analogy is wolves at doors and sandwich shops, they can be pretty general, but if it's economics you all of a sudden get a lot more demanding.

Regarding point a) Saudi Arabia, Iran and others have certainly held oil off world markets before. Iran in particular is cash rich, doesn't have to answer to short term investors and doesn't care much if American SUV owners are inconvenienced. I can't imagine that they are pumnp themselves into a weaker position.

You point b) seems to accept a peak 8 years out. In that case, perhaps you are right, but imagine the same case you present, but five years from now. The reserve owner has pumped for five years and has plenty of cash, but can see can see the good days are over. Their supply is running out an high prices are on the horizon. I don't think they are going to keep pumping at full speed. And if they do, someone will buy it and hold it off the market if their expectation is an imminent price increase.

I am not an economist and I don't mean to quibble with you on your own site, which I enjoy very much. I do think peak oil is a real phenomena and can be justified in economic terms. There is nothing in economics that is going to argue against peak oil if it is real. My impression is the Econbrowser was essentially offering an olive branch and attempting to bridge the gap between economists and peak oil advocates. I think that by patiently going over the data that people like Simmons and other have presented, discussing the time delay issues, weakness of envisioned replacements and other issues we all understand we have an opportunity to convince a lot of people. But by treating an offer to talk as an assault you are missing and opportunity to change minds.

Again, I like your site and don't mean to be argumentitive. If you want me to shut up, I will.

You guys are oversimplifying the issue. It's not a choice between full-out production today vs doing nothing for two years. If there really were strong evidence that the oil would be increasing rapidly in price in a couple of years, the sensible thing to do is to pump it moderately for now. You'd produce slower than you would if you didn't expect the price to rise, but you wouldn't stop entirely. You need some cash flow and there is also the chance that you are wrong and the high prices won't materialize. If and when the high prices do appear you increase the pumping and make a lot more money.

This basically supports Econbrowser's point that if oil producers truly believed that a price rise was imminent, it would change their behavior and reduce the amount of oil on the market today. That would itself lead to price rises in advance of the shortage, which is a good thing! It's more of the invisible hand doing its job.

Some people suggest that this is what is happening today, that the rise over the last two years is really a matter of anticipating future shortages and not due to present day shortfalls. This manifests in the trading markets as complaints about "speculators". These guys are always cast as the villains. They are said to drive up prices for no good reason, when there is plenty of oil and no serious shortages. The truth is that speculators are crucial for the market to work properly. They are the ones who look to the future and make today's prices reflect future conditions. The fact that current high prices are being blamed on speculators is evidence that in fact they are at least in part due to anticipated future shortages.

I'll agree with that.

I guess what I am trying to say, and not as well as I should, is that economics is not a scheme to discredit peak oil. It is just one way of explaining some of the things that happen in the world, although not to the exclusion of others. There is no inconsistency between peak oil and economics.

In all of this economics discussion I don't see any politics which suggests to me that many participants are in thrall to 'free' market theory. How about some discussion of the fact that the world's most powerful army is encamped in the midst of the most important oil-producing area and what this might mean for the delivery of oil to consumers or the fact that most of the important countries are run by autocrats who may have little interest in doing the right thing for the future of their country (i.e. the ridiculous investment in ultra-luxury hotels and other facilities by the UAE in order to diversify income as oil revenues decline) or the fact that with so many state-run oil companies there may be revenue issues that require as little disruption to oil production as possible or the fact that OPEC is a cartel or look at what Chavez is going to do with his regional oil 'market' proposal or the fact that one big private oil company has lied about its reserves and is not going to be punished by any government. Why not I wonder? If my head was a little clearer I could probably go on...
One more point...if the market worked so well and economists were worth their weight in dollars wouldn't they have done something to stop a world-wide housing bubble from developing? And...Colin Campbell gave a presentation to the House of Commons concerning oil depletion in 1997...what were the economists talking about then? New paradigms! The revolution! The Dow Jones is going to hit 30,000! Well, Colin Campbell is still saying much the same thing and what are the economists saying? I'll take my cue from the geologists for now thank you very much.

If memory serves me correctly, no one, including those in the know, could confirm peak production in the United States until after the fact. The state of perfect knowledge of future production doesn't exist.

That imperfect knowledge means that any bet on the futures market entails risk--a risk that would be evaluated in the light of a recent history of drops in oil price. Who wants to make such a large bet and be wrong by six months? Given the complexity and secrecy surrounding actual oil reserves and production, the futures markets may not give a signal until it is relatively late in the game, so to speak.

Jack/Halfin -

What debts do the OPEC countries have to service?

I think that "not pumping" would quickly put them all in default...they have minimal revenue alternatives.

Heres the bet 5 years ago you could buy dec 06 oil for 20 dollars a barrel hold an wait you dont have to time the event to within 6 months. Dec 11 is the latest delivery date on the board now for $57 a barrel not as good as $20 but still a good buy if you believe in P.O.

$60 a barrel is no mans land it isent high enough to damage demand and its consided 'expensive' by many economists. This winter its gunna be real interesting

Assuming that only a small fraction of available reserves can be extracted yearly, a discounted cash flow analysis shows that there's nothing to gain from holding off on production in most plausible scenarios of a price surge occurring in the near future.

Waiting before beginning extraction of a resource is profitable only if depletion is fast or you have a low discount rate, which means you accept a low return on investment.

For example, assume you have a resource that produces $1 worth of oil this year, and lasts forever depleting 5% every year. Assume that price triples n years from now. Your discount rate is 10%.
dcf1 = discounted cash flow starting extraction now
dcf2 = discounted cash flow starting extraction one year from now

n = 1
dcf1 = 18.690
dcf2 = 18.621
n = 2
dcf1 = 16.980
dcf2 = 16.821
n = 3
dcf1 = 15.518
dcf2 = 15.282
n = 4
dcf1 = 14.268
dcf2 = 13.966
n = 5
dcf1 = 13.199
dcf2 = 12.841
n = 6
dcf1 = 12.285
dcf2 = 11.879
n = 7
dcf1 = 11.504
dcf2 = 11.056

Withholding production is not profitable.

Assume 8% depletion, 8% discount rate, and
price tripling after n years:

n = 1
dcf1 = 17.531
dcf2 = 17.969
n = 2
dcf1 = 15.838
dcf2 = 16.129
n = 3
dcf1 = 14.406
dcf2 = 14.571
n = 4
dcf1 = 13.193
dcf2 = 13.253
n = 5
dcf1 = 12.167
dcf2 = 12.138
n = 6
dcf1 = 11.298
dcf2 = 11.193
n = 7
dcf1 = 10.562
dcf2 = 10.394

Withholding production is profitable if you expect the price surge to occur in four years.


Even the economists cannot agree on these points!!!

Oh God, my sides are hurting....


OK, I am done with my fit.

OPEC has NOT PUMPED full out intentionally for decades.

Most OPEC countries are highly debt leveraged, and cannot avoid pumping at a reasonable level. Their goal has always been a stable price - that lets them plan and borrow money.

What is interesting to me is that the biggest swing pumper, Saudi Arabia, cannot pump any more today when it is needed to stabilize prices - sour crude doesn't count. Nobody is rigged to refine it.

Attributing "free market" economics to a producing cartel is a total fallacy and waste of time. The market is and has been controlled. We may now be entering a period of uncontrollable price fluctuations brought on by NO MORE CHEAP, EASY OIL. I am not saying peak, just peak cheap&easy. This means we are staring at a price step to a new base level.

We may level out at $60 or at $45 or at $75 - who knows? Once we do, OPEC will again be able to exert even tighter pricing controls as the rest of the world depletes rapidly. Again, free market is a misnomer and misapplication of economic theory. Each of the OPEC countries has other axes to grind than profit. Power figures into this, as does security (particularly from our military). Economics cannot and does not purport to explain much of this.

These "step-price-changes" are what we can expect until other resources are brought to bear on our dependence problem. Until we develop alternatives as a cushion to these step-price-changes, volatility will rule at each change and OPEC will rule between the steps. And as each one hits us, our economy will contract a little more. In turn, our energy usage will decline, and the demand will go down until adjustments are made, Then the forever expanding economic machine will kick back in and drive us to another step change in price.

I hope...

I promised myself I wouldn't get sucked into this conversation, but I can't help it. I'll keep this as concise as possible.

I'm an economist. I do not worship the free market, nor do I neglect its ability to allocate scarce resources and create incentives for people to invent new solutions.

I'm sick to death of people in the PO debate prejudging economists and talking us as if we're walking in lockstep, blindfolded, and drunk. We're just like any other profession: There are good ones, bad ones, lots in the middle, and lots of disagreement about individual issues. We're human. Deal with it.

In particular, please don't talk about how economists "all believe that the market will produce an endless amount of oil if the price goes up enuogh." NO ONE BELIEVES THAT. At least no one I would call a true economist. (Pop quiz: What's the definition of economics? It's the study of the allocation of scarce resources. Got that? SCARCE RESOURCES.)

Look at the big picture, people. If the world economy runs full-speed into the peak oil brick wall, crashes and burns, how good will that be for governments, corporations, and the wealthy and powerful individuals? Do you think that they might actually have an incentive to put the brakes on our oil usage pre-peak, by taking actions that would ease up prices? (And all prices have done so far is ease up. I won't consider oil prices "high" until they stay above $80US/barrel, and not "very high" until they're consistently above $120. But even then, once those prices are sustained for long enough the economy will evolve and lessen the impact, so the price of oil being "high" has a critical temporal context that's often overlooked.)

The comment by Halfin above about the role of speculators deserves a standing ovation. By definition, the supply and demand interaction, with reallocation signals communicated via price changes, is a very short-sighted mechanism. Speculators greatly extend the economy's planning horizon. Sometimes they're wildly wrong (either high or low), but often enough they're a much better indicator than blindly relying on short-term price fluctuations. Demonize them all you want, but they do indeed provide a very valuable service.

Don't ever ignore the evil troika of Timing, Psychology, and Politics when talking about economics. These factors can individually or in combination play havoc with markets. There are some references to this in this thread, which is good, but in general the PO discussions I've seen online are so focused on proving for the 873rd time that peak oil is real (well, duh!) that they all but ignore all the market factors. If you do ignore these factors you're willingly casting yourself as one of the blind men touching the elephant, and dooming yourself to reaching insanely wrong conclusions.

Our transition away from oil will be nasty, brutish, and anything but short. Some parts of our current world economy and industrialized western lifestyle either won't survive at all or will only make it in a drastically changed fashion. But we will make it.

Ronnie thought he'd won the race,
When Gorbi's pony dropped its pace,
But that was not the race at all,
It was to see who'd be first to fall,
True to promise of Krushtov relapse,
Gorbi's pony was first to "Collapse".

(Jared Diamond style that is)
(Yukos gold)
(Ya 'all pay heed now)
(Come and sit a spell)

All this brain busting talk about the collapsing human institution known as capitalism is a waste of time. I'm no Commie. But it should be clear to followers of the oil drum that the markets are not rational.

The markets do not "provide".
Instead the markets divide.
Each time a trade is made.
One of bid and asker comes out slightly ahead.
Over time the rich get richer and the poor get poorer.
The rich focus only on how to make their numbers in the next Quarter.

NO ONE is in the steering house watching as our global ship heads ever closer to the great falls.
That's what's going on!!

Stop squawking about price per barrel.
Run to the steering house
and get this ship onto a survivable course !!!

Please step back and listen to roar of the upcoming falls.
Don't be fooled by the Siren song of another dollar clenched in the Monkey's Paw.


You aren't showing enough of your analysis to help me see where you have gone wrong, although I would guess you are counting more barrels in the pump now case.

With a given amount of production, any model is going to show that a price below the discount rate (in your model 10%) favors pumping later. That's not even economics, it's math.

I'm not claiming a simple model or DCF analysis proves anything, but to claim that hoarding is never profitable is like saying water runs up hill.


Most OPEC countries (maybe Nigeria and Venezuela excepted) are in a very favorable budget situation. They do not need to pump oil to service debts, although this was true several years ago. Recent price increases have left them rolling in money.

WTG Grinzo!!!!

I respect a man that defends his profession! And I got to admit, that with the communication difficulties amongst us all, economists have taken more than their fair share of heat. But hey - you can always leave the kitchen, right?

What I respect is that you didn't!

So, am I basically right in my scenario of step-changes in price? I know the details aren't predictable, but basics? Do you agree?

Because I really hope I am.....

P.S. Check out Kunstler's latest rap on how we have moved beyond Peak Brains

As always, he's cussin. But he's right.

A piece of my comment to AK600 above got lost. It should read:

Any price increase below the discount rate favors pumping now, any price increase above the discount rate favors pumping later. This is true for any amount of oil and whether the shift in production is small or large.

In any event the model is flawed.

Re: Speculators

Speculation is gambling on future prices. They do provide us with a weathervane about the future but their behavour lies outside mainstream corporate economic behavour.

It's all quarterly profits and the stock price depends on this. Those quarterly statements better be on the plus side and higher than the same quarter the year before. I'm a Big Oil Company (BOC) and I'm holding those reserves now valued at $60/barrel. I'm now going to tell my stockholders that for N years, they will make no money because I know that those assets will be valued at $200/barrel and there will be a big windfall at that time. I can hear the BOC executives say "trust me". But the $200/barrel is based on speculation. The stockholders will just say, "OK, we'll wait".

This is so absurd, I can't stop laughing....

HO is right and Rajiv got right to the point in the very first post here. The more serious problem is the myopic and reactionary nature of business culture. I wonder how many futures traders are thinking "we're at the peak...". I thnk it's more likely they are reading some pollyanna story by Daniel Yergin instead.


When you stop laughing, you may find it useful to read to posts you are quibbling with.

Big Oil companies control a small minority of oil. The owners of the vast majority of reserves are middle eastern countries with no shareholders and an abundance of cash, which they are having trouble investing. I don't dispute your asserton that it would be hard for an Exxon to say, we are going to sit on our oil. This would undermine their claim that they are worth money because they can find more oil. But the behavior of big oil companies has little to do with the assertions you are arguing with.

Speculators hardly lie outside mainstream economic behavior. The currency exchange is the world's largest and most efficient market. Oil futures are also large and liquid. It is inconceivable that the majority of hedge fund capital, or a firms with a long term obligation to buy oil, would knowingly forgo profits or be willing to pay more inthe future if they felt prices were certain to increase at a high rate.

Again, none of this is complex economic theory. Very few people buy something in the hours before a half price sale.

No one is saying that economics explains every single detail, is a perfect predictor or isn't subject to distortions like the ones you note. The fact that the argument against it can't rise above this level is a pretty string boost for the theory.

The DCF model was quite simple -- a "well" that produces $ (1-d/100)^i units of oil in the i:th year of extraction starting from year 0. d is the % depletion rate, for example d=5 . A unit of oil sells for one dollar for the first n years and then sells for 3 dollars. Sum that for i=0 to infinity and you get dcf1. dcf2 = (1-d/100) * (dcf1-1) .

As the second calculation shows, delaying production can be profitable under the model, but the rate of depletion is crucial, you have to have d/100 * dcf1 > 1.

Lou Grinzo: "but we will make it....". Interesting phrase. Who is "we"? How long does "will" cover? What does "make" involve ? What does "it" refer" to ? What is the definition of voluntarism? Your post was interesting though "but we will make it" was a bit of a leap of faith. I can't eat leaps of faith which is why I started growing vegetables...

step back, what's up with Kuntsler? He's done away with his blog, and gone back into his shell it appears. He was being ripped to shreds by the wolves who kept reminding readers that he (Kuntsler) was absolutely dead wrong about Y2K and absolutely dead wrong about Iraq, and that he's just a money-grubbing promoter of fear. I guess if he's wrong about oil and suburbia he wouldn't have much credibility left (the three strike rule). Happily, we'll still have two strikes left.

Philip -

Which is why we will make it. People like you that are smart enough to get practical are all around, but they are NOT the majority. For the majority, it will be terribly difficult, and they will have no real clue what has happened.

They will know the latest fashion trends and which hollywood luminaries are sleeping together...

In my view, we are looking at Peak Oil being the prime mover or limiter for a lot of things until I die. I am 47, and hope to make at least 90 like my grandfather did. It will be something that kids and young adults today will become all too familiar with, as various things become unaffordable or unavailable.

I think we will get into a worldwide depression before it is all over, and as we (first world) are the most financially vulnerable, we will suffer the most, relative to our current status. The rest of the world will be slipping back into agrarian existence fairly quickly - they are only recently urban in many places, and their standard of living is such that they cannot fall very far. Energy for power generation is an issue TODAY in many parts of the world at the $50-60/bbl level. They are hosed at $100/bbl unless they have their own oil and can defend their borders.

Those are MY guesses...others have theirs.

I do NOT believe in the magical technical bullet. Technology is slow to fruition, and never as envisioned. It nearly always has unintended consequences and repercussions (like resource depletion - including metals).

I do NOT believe any government or corporation is smart enough to pursue anything but the easiest solution, take the path of least change and resistance. And it is because governments and corporations ARE NOT capable of making these harder, longer term decisions that we will be forced to either change them by force of our numbers or keep repeating this same resource depletion scenario.

I am sure others agree/disagree on various grounds. What is your personal guess, Philip? You have as much a right to that as anyone else.

Penguin oil prices have not exploded since the last great penguin was boiled. The price of ivory has not climbed as elephants are decimated. Instead, brilliant men and women found replacements.

Enough equations now.

Reading your post, Jack, I think we're mostly in agreement. Also, I confined my post to "mainstream corporate economic behavour".

But my comment was not a criticism of posters here commenting from the point of view of economists. It was a criticism of the original article on which this thread and PG's thread was based from Econbrowser.

I'm aware that "Big Oil companies control a small minority of oil". So, who does the Econbrowser scenario apply to? Aramco?

Lou Grinzo writes:

"If the world economy runs full-speed into the peak oil brick wall, crashes and burns, how good will that be for governments, corporations, and the wealthy and powerful individuals? Do you think that they might actually have an incentive to put the brakes on our oil usage pre-peak, by taking actions that would ease up prices?"

You mean, like pushing hybrid vehicles and the next thing, the GO-HEV?

Both California and the US Federal government have, until recently, acted either to frustrate these vehicles coming to market (CARB could have promoted them in the 1990 ZEV mandate, and didn't) or quash programs just about ready to yield fruit (PNGV).

So no, I don't think anyone in power in the US government has a clue, and the consequence has not only been much more pollution in California, it's going to be much more economic pain.

I have an image of a scene 2 years from now:  a 4x4 pickup owner is selling his antique heirloom furniture so he can pay the loan on it and still have gas to get to work.  The buyer shows up in a Prius pulling a utility trailer with a bunch of battery boxes slung on the sides and some fat cables plugged in next to the hitch.

Jack said

Regarding point a) Saudi Arabia, Iran and others have certainly held oil off world markets before. Iran in particular is cash rich, doesn't have to answer to short term investors and doesn't care much if American SUV owners are inconvenienced. I can't imagine that they are pump themselves into a weaker position.

This is, I think, the heart of the matter. Is Saudi Arabia playing "hide the oil"? Do you think that Saudi Arabia (forget Iran for a moment) is in a position to stall and holdback on production, knowing that oil prices will soon skyrocket upwards? This would imply they've got the excess capacity or are delaying building it and are willing to piss off those American SUV owners, i.e. suffer the geopolitical consequences. Every time those Saudis make a pronoucement on what they can do or are going to do, it seems like the story changes. Also, just what is the relationship of George and Condy with the Faud family? And what about those bad Salafis, the Wahabis?

Jim Bob Ray,

Don't know Kunstler's past.
Even if he was wrong 1000 times before that does not of itself make him wrong this one time.

I live in the 'burbs.
Every night the big trucks roll past my house delivering to the local supermarkets.

If petro plummets (in supply that is), how will the trucks bring afforadble goodies to Wal Mart (or CostCo in my case)? How will I get to work?

If the shelves are empty at the local super-duper-markets, how will I feed and clothe my family? If I can't drive to work, how will I draw a paycheck? How will you?

I pray big time that Kunstler is wrong.
I pray that you are 101% right.
But what if he's right on just this one toss of the ball?
Do we call it strike 3 or grand slam?
What's your batting average by the way?

Some careful attention paid to aerodynamics could cut the highway fuel consumption of semi-trucks in half.  I think we're just not yet at the stage that it matters enough to us to do it.


I'm curious on the truck example. I understood fuel costs were about quarter of the operating costs of trucking firms. This story:

says 20% to 40% of operating costs.

If they could halve their fuel costs as you suggest, that would massively increase their net margins (from a fairly negligble base). Truckers are now going out of business due to fuel costs:

It seems like trucks using half as much fuel would have sold well quite some time ago...


J comment is applicable

The rest of the world will be slipping back into agrarian existence fairly quickly - they are only recently urban in many places, and their standard of living is such that they cannot fall very far

I live in a developing nation and $60 hurts, but $120 will slow us to a stop.

Engineer-Poet has made a critical point. Just why has the US Government not stepped up to face the problem? Massive public transportation renewal, focus on starting a more localized food production infastructure for the nation.

It has been mentioned before, but I will repeat, Cuba is the living example we must refer to when thinking about an oil reduced future.

Perhaps OT, but speaking of allocation of scarce resources, I looked up trucking costs a while back to try to answer a demand-destruction-related question: which will give first, long-distance trucking or individual auto use?

Background info: trucking rates of about $2 per mile, out of which figure six miles per gallon with a 50,000 lb load (which suggests 50 cents per mile for fuel if diesel were to cost $3 per gallon).

Now look at a household taking home 100 lbs of groceries in a month. Figure an average shipment distance of 500 miles. Assume the cost of diesel were to rise by $2 per gallon. The marginal extra cost in diesel to ship these 100 lbs are: ($0.33 per mile marginal fuel cost increase) x (500 miles) x (fraction of truck used or 100 lbs / 50000 lbs). That comes to an extra 33 cents out of pocket for extra fuel charges for shipping, for a month's groceries so estimated. A simpler way to express this is in gallons of fuel: one-sixth of a gallon per month to support the direct trucking component.

If diesel and gasoline prices increase by the same $2 per gallon, compare now the extra household spending on gasoline at the pump. It is bound to be much more than an extra $0.33, assuming (no doubt) a household gasoline use much more than one-sixth of a gallon per month.

I have concluded that for all the concern sometimes expressed in comments here for the future of industries predicated on long-distance transportation, that part of the overall situation might be more robust. In the example given, there could be a considerably more pressure felt, eventually, by individual drivers at the pump, than at the grocery store (due to trucking-cost-increases applied per pound to grocieries).

Perhaps one place to look for growth (and for a method of conservation) is in online grocery shopping.

I might have mis-remembered; according to data I dug up last year the breakdown is 38.5% each air drag and rolling resistance and 23% equipment losses.  This paper claims that the drag coefficient of semi-trucks is typically about 0.6, while NASA's research indicates that this might be optimized to 0.25.  That's almost a 60% reduction in drag.  If better tires and equipment can halve the losses there (or if the Blade Runner [link deleted due to HaloCrap restrictions] scheme is used to allow trucks onto rail lines), semi-truck fuel consumption could indeed drop by half.

Optimizing drag to that degree means a much greater degree of aerodynamic matching of tractors and trailers, and aerodynamic devices on trailers which would extend their length.  So long as we allow states to impose truck length restrictions which include drag-reduction devices, we penalize fuel savings and indicate that we are not serious.

Ok so using the rails is the big win (which makes a lot of sense). That's a pretty complex change though. The rail companies already ship truck trailers on flatbed train cars (I know this from watching endless kid train videos with my sons :-). I suspect they'd want to do more of that, rather than have trucks running around on their tracks individually, enormously complicating their signaling management.

As to the health of the trucking industry: they just need to shrink to the point where they can start to pass the price of diesel through to the rest of us as needed (IMO). Then heavy stuff will start to get more expensive.

I'm with Jack and Lou Grinzo, here. If you can make more tomorrow by not pumping or pumping less today, you will do it. For one thing, you can always take out a loan or sell shares in future production, appropriately discounted, and thereby liquidating the future income now. For some reason, there seems to be a belief that all companies have a time horizon of between 24 hours and 3 months, when in fact we know that plenty of them (even oil companies) make R&D and construction investments that pay out 5, 10, even 20 years down the road. That's Hotelling's point: oil in the ground is an investment. I also have yet to read an economist who believes that the supply of petroleum is infinite; that's a strawman.

Stuart, the one thing the railroads don't do is short-haul.  It's complex and time-consuming to put a container or a whole semi-trailer on a flatcar, so you're not going to do it for a run halfway across the state; in addition, the train doesn't supply electricity to run refrigeration gear the way even container ships do.

If your truck can jump onto some formerly-abandoned tracks and make that cross-state run with half the fuel that the same trip would take on pavement, that's quite a saving.  If someone gets the bright idea of electrifying the tracks so that a properly-equipped truck doesn't have to use any liquid fuel at all... you get the idea.  I hinted at this in A post-oil vacation.

Eric H:
Would you put $1000 into an investment that pays you $200 yearly for five years starting seven years from now? You get 200% of your money back, but that's less than a 10% annualized return because you have to wait 12 years to get it all. Oil producers are in a similar situation when storing oil in the ground.

Suppose you know for certain that prices are going to triple five years from now. If you have a barrel of oil ready to ship you'll of course hoard it and sell it when the price jumps, pocketing a massive 24.6% annualized return.

But oil producers don't have the stuff in barrels lined up for delivery. It's in the ground and only a small fraction of the total reserves can be extracted every year. Suppose you have a resource that produces x bpd now and depletes d% yearly. If you don't extract any oil this year, you don't get to extract 2*x bpd next year. You only get x bpd, which is just d% more than you would get next year if you started extracting now. The extra amount of oil you can sell later at a higher price depends on your rate of depletion. Slow depletion -> small gain from a price rise in the future.

Engineer-Poet. Ok, I think I'm having a creative moment here. Or possibly a crazy moment. I was lying awake tonight and the exchange on trucks/rails led me to think of a post peak-oil long-haul and short-haul land transport system. (I am a scientist/inventor/entrepreneur by profession, but I have hitherto confined myself to software inventions). Tell me what's wrong with this.

We need a system that would allow long-haul and short haul movement of both goods and people at high speeds (at least as fast as trains/cars, preferably better). It needs to use dramatically less energy in operation than current systems. It needs to have much lower embodied energy than current solutions (railroads, roads). It needs to be possible to roll it out at large scales quickly, without lots of elaborate time-consuming engineering and construction (in case depletion is rapid). It needs to be at least as safe as automobiles.

Use a rigid lightweight tube about 5 1/2 feet in diameter. Make it of pre-fabricated sections. Use a material with properties roughly like polycarbonate (though some bio-engineered material might be better in the long-haul - that can evolve over time). Ideally have it transparent for view, but UV resistance is important. Use bolts and some plastic cement equivalent to join the sections via heavy flanges at either end. Evacuate the air out of the tube.

Inside the tube run lightweight cars around 5' in diameter and 10' long, built from similar materials, and designed to carry not more than 600lb each. They travel individually, at high speed, and at computer controlled spacing designed to avoid overloading the tube foundation. They run on three-four lightweight rails spaced around the tube. The tube and rails can be mass-produced as a unit - the rails are clipped to the rails in the next unit during field assembly.

The wheels are low friction metal jobs with low friction bearings. The cars are powered by a small ( few hp?) electric motor with a battery. The motor units would be plug and play interchangeable, to allow a larger (or second?) motor to be swapped in for hilly sections of line). The rails are electrified, keeping the batteries out of use except in emergencies when the battery is just intended to get to the next station.

Since the cars are light, carry modest loads, and travel singly, a new line can be put in with very little in the way of heavy foundation work - a few heavy bolts into a couple of bags of cement in a few holes would be adequate, per section. The line can mostly just rest on the ground, or in a very shallow trench. Lines would generally go above-ground. Bridges etc need be no more substantial than a footbridge. Existing rights of way on freeway shoulders, old railway tracks etc can be used to avoid having to create lots of new suitably graded routes. The tubes can slowly take over more and more lanes of the freeway. It should be possible for a small crew to put in a mile or two per day. Slightly curved sections are used to navigate around corners - it should be possible to do about as well as a narrow gauge railway (the computer would need to slow cars down through tight bends).

Stations every so often have cars slow down, pass through an airlock, and then allow exit/entrance. Some cars can have seats and carry passengers (requiring air cylinders!). There's no reason people couldn't have their own fancier cars, as long as they hooked into the standard systems for control/power. Other cars would carry freight (most freight is small - occasional huge things would still have to move by truck, if they couldn't be moved in a pre-assembled state). An occasional car could be longer as long as it didn't exceed the weight limit.

Since the cars are so light, have no air resistance and slight rolling resistance, even a small motor should serve to achieve a high speed. A much larger motor would be needed to get over the Rockies, etc. A secondary motor could be attached at the station at the bottom of the hill, and taken off on the other side.

One can imagine different grades of line. Hastily put in local lines could be set side-by-side to carry lots of people at modest speeds for commuting. Long haul lines could be more carefully engineered to allow speeds of several hundred mph.

In case of a problem, the computer stops everything and crawls everybody to the next station. Cars have air masks and an emergency power saw in, so if the worst comes to the absolute worst, you just saw through the tunnel to get out. That section is replaced the same day, and the show goes on.


Some ideas on which I am very keen on getting a comment from an economist or anybody else concerning the qualities of the oil price ceiling:

I think that high oil prices will not curb demand for the foreseeable future.

The reason is what I would call differential marginal return.

If prices go up, those oil uses with the least actual or felt marginal return on the investment will be reduced first. This lowers demand pressure on prices from these uses, just to be compensated by uses with a higher perceived marginal return taking advantage of the demand "gap".

I guess this effect will happen on all levels - locally, across industries, nationally and, most importantly, internationally, due to the large differences in general industrialisation around the globe. China, for example, seems to be just fully entering the steepest part of the energy use ROI curve, still being far from its diminishing returns part, whilst "the west" actually gets relatively little real benefit from using even more energy.

So my estimation is that prices will go up to the point where
- all "easy" demand destruction like reducing direct energy waste has been taking place,
- every oil consumer feels about the same pain from *not* buying the next barrel of oil *and*
- the price for the next barrel is higher than the expected/needed ROI from that barrel.

I expect this new equilibrium to manifest itself very quickly after the actual production plateau is reached and at very high prices indeed, as there is currently a huge number of users that can make very profitable use at double or even triple prices.

A thought that was coming to my mind just now: According to Liebig's Law, the least available necessary resource limits the growth of a system. So far, oil has hardly been the limiting factor for economic growth.

Slowly increasing oil prices below a certain threshold are "just" reducing profit margins and sparking inflation in the form of increasing prices for goods and services.

But after peak oil, actual scarcity will become critical. Prices will not just be painful because they directly increase bills and lower margins, but also because lack of (affordable) oil will diminish the leverage effect oil has as an enabler for the other elements of added value in products and services.

Imagine a pizza home delivery service: at first, they might try to live with a reduced margin in order to stay competitive. Then they would have to nudge up the prices for their service in order to survive. Then there is a point where the whole service becomes obsolete because the gas for the delivery vehicles adds such a premium to the price of the food that it can no longer compete with the "inconvenience" of preparing your own food.
The whole service would go bust, the skill of the pizza cook and the friendly delivery personnel could no longer create added value for the operator of the service.

(Sorry for the crude and somewhat incomprehensible phrasing - I struggle with the concepts as well as the language.)


Davidyson (Germany)

Stuart -

Why not just rollout a smaller version of the old pneumatic tube system? No wheels - just air pressure at one end and vacuum pulling at the other? It is simpler, has already been proven, and by using modern materials with low frictional coefficient, better sealing polymer materials, etc. the pods riding in it can be very simple to manufacture. Think of it as a "material pipeline", where pods carry stuff from freighting junctions to outlying consumers. I think Robert Heinlein envisioned this in one of his books.

TRUX - the large number of independent truckers makes changing anything a slow process. Their rigs are financed monsters and they have to roll to eat. Asking them to shell out more cash when their wallets are already shrinking wil be tough, and asking them to take on more debt for a new or modified rig may be impossible. If the independents wither away, we are left with large trucking firms who are in the same boat.

When you talk about changing government regulations, you just opened one big fat can of worms. Truck manufacturers do not want changes, taxing authorities do not want changes, truckers do not want them because they usually mean money exiting their pockets. Only legislators want change, as it makes them look like they are doing something. Repealing regs and laws would work more efficiently, but legislators simply do not think that way.

RAIL - I don't know how things are outside of the southern states, but down here most of the unused RR tracks and spurs have been scrapped, as in crossties recycled in gardens and steel sent for pig iron. The bridge pilings have even been cut off at the waterline over creeks, and at the mudline over rivers. The right-of-ways have been seeded back to the landowners as well.

It's not that the infrastructure to deliver to small towns is in bad shape, but rather that it has been salvaged and completely dismantled even at the property rights level. Undoing this, even if the railbed is still in fair shape, will be both expensive and resource/time/money intensive.

I am still of the opinion that rail revival is required long term. But because trucking was chosen over rail by whoever (govt, consumers,??), the rairoad companies are in worse shape than the oil industry. They have eaten each other to stay alive like we have, and if it wasn't absolutely necessary, it was eliminated or sold off. If it didn't generate a profit, it was killed. I know this because my brother-in-law actually works training engineers for UPRC. We have talked about what has been going on for 20 years at every annual family reunion.

I would love to hear from anyone on the east or west coast or the plains states about the shape of their rails and spurs. If they have been through what the southern railways have, then we are basically talking about a complete new system having to be built.

Just some thoughts....and I am NOT negative, but want to keep things realistic. Pragmatic if you will.

Poet dude,
Forget the expensive tubes
All you need is an old fashioned "convoy"
The truck in the lead displaces the air up front
All the rest of the trucks follow close behind in each others drag

Don't most trucks have air deflectors up top?

Davidyson:  That would create a bunch of openings.  For instance, consider motor scooters with pizza-warmer boxes on the back (maybe with heater plates in them, plugged in while the scooters are at the store).  If the delivery cars get 25 MPG and the scooters get 80 MPG, you've just cut the fuel requirements by 69%.

In the extreme, the delivery vehicles will be electric.  Electric vehicles create the possibility of co-generating their power, and pizza ovens require heat.  I see a gas-fired radiant pizza oven which uses a solid-oxide fuel cell as its "heating element", and the electricity going to recharge the delivery vehicle outside.  This may never happen, but it's within the realm of possibility.

J:  Recover the rights-of-way via eminent domain, or put rail down freeway medians.  If most of this rail traffic is dual-mode vehicles, freeways are the ideal place for new rails.

step back:  Tubes aren't my idea.

Semi-truck air deflectors do save fuel, but they only reduce the Cd down to 0.6 or so.  And they are nowhere near as good as they could be; the gaps between the fairings and the trailer are zones where energy gets wasted as turbulence.  Last, they do nothing to smooth airflow around the trailer's rear wheels nor around that square afterbody.  To be maximally effective, all of those have to be addressed.

Unplanning has a very interesting post on depletion at a micro level.


Don't you think this last supreme court decision was enough? Why can't we just lease them back and give some taxes back to the people whose land we use? That is a hell of a lot easier sell and makes more sense than a massive land grab.Or just give a tax credit of 100% to the rail companies for leasing it back...

I agree with co-gen everywhere. Never understood why refrigerators and water heaters were separate anyway...

Dual use vehicles are a good idea but a long way from practical right now. The standard railroad dual use truck carries enough extra weight to drop gas mileage to single digit levels.

A group tried to sell the "monorail over the freeway" to Houston city council. It was actually killed by the contractors - they have no faith in that type system at all. There are too few operating across the world. But it does make much better sense from a cost and land-use standpoint.

I would love to hear from BigGav about "truck trains" I used to see them outside of Perth and Darwin when I worked down there. All we would need is a little acreage outside metro areas to implement this.

And I also saw heavy cloth fairings on the newer truck trains, between trailers and covering all of them. I think this was for improved mileage, but it might have been for dust.


Thanks for the model inputs. I haven't had a chance to play around with them but will. I have two basic conclusions:

1) I was right that if the quantity is fixed and the price increase is higher than the discount rate, the incentive it to hoard.

2) You are right that it is not that simple and that a well owner may not be able to make up for the missed opportunity of this years pumping (ie. they can't not pump in years 1-3, then pump double in years 4-6).

I need to think about:

1) What is the long term impacts of holdng oil off the market. I can see how it wouldn't pay back in 8 eights, but would have to payback over the entir elifetime of the field. As usual, the inbetweens are the hardest to figure.

2) How this plays out in other scenarios, ir futures markets.

In any event, your model is useful and does help to shed some light on pumping incentives.



I've talked to truckers about their fuel economy.  Mileage in the single digits (6 MPG) is normal for standard rigs.

A comment on Saudi oil revenues. Matthew simmon's book, "Twilight in the Desert" has a section on Saudi Arabia's internal structure. Their fertility rate is 6.3 children per woman (tripling the population every generation), the average age is 14, and they have run a government deficit 19 out of the last 20 years. They are lying about their reserves because they are heavily dependent upon new sources of banking credit just to provide desalinized water for their gathering hoards of citizens. It is difficult to believe that they are "investing" their newfound profits overseas.

Other OPEC countries are in the same boat. Iran is supposedly investing in nuclear energy at least in part to save energy so it can export natural gas for foriegn exchange, and to diversify their domestic energy portfolio.

>>One needs to be more appreciative of the realistic case. If you have an oilwell that is producing 6,000 bd at $60 a barrel that is $360,000 a day. Expecting anyone to wait around to make $1 million a day a year or two from now seems to be rather unrealistic.

Hordes.  HORDES!  The word is "hordes", not "hoards".

If the good grammar is being hoarded around here, eye will try too confuse ewe just sew eye kin watch yew try two make out what aye mean.


LOL! That grammar thing does me in sometimes too.

So then the dual use gain is strictly to allow non-stop travel as the big boost to economics? Or to hook the trailers together with a locomotive?

I just asked and was told the setup for this weighs about 2-1/2 tons for a pickup truck, and assuming another set, that's 5 tons of load added when roading it. Then again, diesels like being loaded...

I would wait, if I thought the price increase was a sure thing.

But when pumping oil, the choice is not between getting $360,000 / day
this year and $1 M / day next year. The choice is (assuming 3% depletion) between
(1) getting $0 this year and $1 M / day next year, $0.97 M / day the year after that and so on
(2) getting $360,000 this year plus 0.97*[anything you make next year and beyond]
and the difference is much smaller.

Of course the fact that storing oil in the ground is mostly unprofitable in this analysis shouldn't matter very much at all -- if a producer believes in a price jump in the near future, they're going to pump at max capacity, but then *hoard* the oil above ground (unless that is really expensive, I don't know).


Hoarding oil downhole, outside of giant fields, is risky. Oil moves - it migrates. Wells that are shut in collapse, get filled with paraffin, limestones crystallize and pore spaces change. Once you start the thing flowing, it is always best to leave it flowing. Interrupting for 2-3 weeks is one thing. Years is very risky.

Of course, if it were a BRAND NEW field with lots of pressure, it might be possible. BP might do it with Thunder Horse, but then they will be defraying the payback on one big expenditure. Accounting will not be happy watching that ink sit on the books.

You have to pay for your production and drilling equipment up front. Realize you start off millions in the hole - not pumping will force you to dip into other projects to pay for getting this one online. Where there are partners involved, this gets complicated fast.

There are myriad reasons why hoarding oil makes no sense - and making a few extra dollars is questionable unless you have an absolute 100% sure thing on the timing. Frankly, the reasons why are simply added costs, which kills all but a perfectly timed price spike as the means to make a significantly larger profit.

Storage above ground is too expensive - takes your margin down to breakeven in most cases. That's why people don't do it and went to just-in-time delivery.

J: That was my first idea. I'm pretty sure it wouldn't work at scale. The air would slow down due to friction with the tube in a pretty short distance (less than a mile), and then you'd get killed by air resistance. Air is very compressible, so you'd need an outrageous pressure differential to keep it moving over any distance. I couldn't think of an obvious way to keep it moving in the tubes that wouldn't get in the way of the cars. Think of it this way: the friction of air with a thousand mile long tube wall is going to take more energy to overcome than just running cars through the open air for a thousand miles.

The reason for the tubes is to allow things to move in a vacuum (or close). With low rolling resistance and no air resistance, that could lead to a transport system that used O(1%) of what the current one uses to operate while moving a similar quantity of goods. That might be possible on renewables plus existing nuclear (I believe there is no hope of that with trucks since renewables have such a sucky energetic ROI).

I don't believe the investment to build conventional railways all over again will be feasible in a rapid decline scenario - the required energetic investment will be too large over too short a time period, when we also need to make a bunch of other big energetic investments to solve equally pressing problems of reconfiguring food production and ongoing energy extraction.

I was trying to think of something that might have a shot in a 10% global decline scenario. If Russia, Saudia Arabia, and a few other countries start acting like the North Sea, you'd get to 10% global depletion, so it's not inconceivable. In that scenario, steady replacement of the conventional vehicle fleet with similar but 2x more efficient vehicles cannot keep up with depletion. Only about 5% of autos turn over each year, and it's even lower for trucks and trains, so improvements in fleet efficiency are very slow - you can't reduce transport energy use much better than 2% a year through that kind of conservation. Make it 3x more efficient and it hardly helps. (Low embodied energy retrofits that improve efficiency might be good, however)

*Increasing* the production of conventional vehicles is something I can absolutely guarantee is not going to happen during a rapid depletion. So you need to reduce the actual goods/people transported by 8% a year: thus we would be at high risk of ending up in Kunstler land before very long absent some new development. I'm trying to figure out what might be viable new developments to avoid that. For another way to think about it: when the government finally gets around to launching the Manhattan-Project-equivalent to solve the problem, what should they try to do?

To get to 10% depletion without major loss of system throughput, you need to be replacing the existing system with something that has *dramatically* less energy usage, *and* dramatically lower embodied energy. If you can do that, then at the end you have a transportation system that will actually be sustainable for centures.

Today I thought of, and somewhat solved, a variety of issues of how to transport the parts through the system itself during assembly, and make it so one didn't need major cranes, trucks etc, what kind of tube wall geometry to use, how to manage tube interchanges, and what kind of gradual adoption scenarios might be feasible. I have a cool airlock idea (make the airlock fit the cars almost exactly so there's very little energy required in sucking air out). I have some unsolved problems with hills and curves that I'm still thinking about (vibration/shifting = leaks), and I don't really think I've hit on a good tube material yet. I'm realizing that the electricity distribution is a significant issue I don't properly understand also. (However, all my past research that I remain proud of required solving a whole long series of smaller issues to get the main idea to work, so it's par for the course).

The mitigating thing about hills is you could use regenerative braking (like hybrid cars) to put current back into the rails on the way down, supplying some of the current required to bring the next car up the hill.

One final note: people often say globalization will fail in a post peak scenario. Since ships use 1% the energy per pound/mile of trucks, it will actually be much easier to keep ChinaWest Coast commerce, and EuropeEast Coast commerce going than it will be to move stuff around inland. It's the land transport piece that has to be solved, along with the low energy-input/high-yield farming problem. If we can figure out how to do those two things fast enough to offset 10% decline a year, then all non-massive-conflict peak oil scenarios are soluble problems. If there's a decent clear path forward, the likelihood of massive conflict will be lower.


(My response to J, posted last night, has not appeared yet despite HaloCrap claiming I already sait that.  Very irritating.)

Third post attempt on this response:

J:  The purpose of going to rail appears to be to cut rolling resistance, which is far lower with wheel-on-rail than it is with tire-on-road.  This page illustrates the concept and has some figures; it claims half a ton per added rail axle, so roughly 1 ton total.  When you look at the picture you can see how that might be accomplished.  (I think the designer is dreaming about his pivoted-cab concept, though.  It can't handle uneven terrain like driveway ramps.)

If I were designing something like that I'd think about aluminum or fiber composite wheels and rail axles.  That is one area where weight reductions would pay well.