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Matt Simmons on Bloomberg: Peak Oil is Now and Oil Is WAY Too Cheap
Posted by Prof. Goose on February 1, 2007 - 6:01pm
Matthew Simmons, chairman of Simmons & Co. International in Houston, talked yesterday with Bloomberg's Rhonda Schaffler about the need to address energy use, his view that global supply has peaked and the likelihood oil prices could reach as much as $300 a barrel. (Source: Bloomberg)Discuss.
“Considering the many productive uses of petroleum, burning it for fuel is like burning a Picasso for heat.”
—Big Oil Executive
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hit reddit, hit digg, send it around folks. good discussion...and I don't know how long it will be on Bloomberg's site.
It will be up at Bloomberg for one day. However, some technically literate sorts have saved it for posterity.
GPM? or other technically literate sorts? can we get it? (and who's going to youtube the f-er?)
I always wonder about copyright issues with things like this. Yeah, you could put it up, but Bloomberg still owns the thing...
Hello Ericy,
Perhaps Prof. Goose could email Bloomberg asking for a legal copy for TOD. If they refuse--pretty damning proof of MSM collusion with Westexas's Iron Triangle Theory. Does Simmons's have a legal copyright to his interview? Maybe he will give us and EnergyBulletin a videocopy for the TOD and EB archives.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
I sent the email an hour ago Bob (great minds)...we'll see if we hear back. I imagine they're gone for the day....
Never mind. Good tech speed.
Give me a place to dump it in on a server (I have none), it'll be there in a bit, it's 12 Megs.
Hello TODers,
Copy of my email to Bloomberg at their Contact Us webpage:
---------------------------------------------------------------
I avidly watched your Simmons interview--I believe it has historic importance. Please email a copyright protected videocopy to TheOilDrum.com and EnergyBulletin.net so that we can use it for Peakoil Education.
I also suggest that if Matt Simmons is busy, the TopTODers are available for interviews on this issue. Their knowledge on this issue is unsurpassed and the charts and graphs are world-class. Thx you.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
----------------------------------------------------
I suggest that everyone contact Bloomberg now. I want WT, Darwinian, RR, Dave Cohen, HO, Prof. Goose, Rembrandt, SS, Nate, Euan, Jerome, and Khebab, and anybody else I forgot to help backup Simmons before Yergin and Lynch get much airtime. Git 'er done!
To the TopTODers only,
I suggest you formulate a TOD press release to help cover Simmon's behind. I hope the various ASPOs are doing the same to support him because we just know that Yergin & CERA was on the phone to Bloomberg asking for rebuttal time.
In preparation for interviews: I suggest a uniform list of talking points so the TopTODers all come off as being on the same page with a 2005 to 2012 Peakoil Window due to hard to get data on KSA & Russia. But I will leave that decision up to your far greater expertise.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
I have to run for a bit, but here's a link just in case this goes away soon:
http://rapidshare.com/files/14448556/MSCallsPeak.mov.html
Click free in the bottom right hand corner, then wait the 30 seconds for the download.
Following is a link to the 11/1/05 interview with Matt Simmons and Jim Kunstler. Matt and Jim had actually never met until that night. During the interview, Jim was in the studio at KERA Radio, and Matt was calling in on the phone.
http://www.energybulletin.net/19686.html
Matt's book, "Twilight in the Desert," was published in May, 2005. As everyone knows, Matt specifically warned about a Saudi oil production collapse.
Based on EIA data, Saudi crude oil production started falling in October, 2005. Current production appears to be somewhere between 8.0 to 8.5 mbpd, down from 9.6 mbpd in September, 2005.
But of course, the production decline was "voluntary."
Calling Peak Total Liquids of 85.52 million barrels/day on Aug 2006
Based on the recent IEA monthly report data
http://omrpublic.iea.org/archiveresults.asp?formsection=tables&formdate=...
I have updated the chart above and peak total liquids production is on August 2006. This assumes that Saudi Arabia’s recent “voluntary” production cuts are actually involuntary. If Saudi Arabia really does have spare capacity then peak total liquids will probably be deferred. Even if they do have spare capacity and no other country does, Saudi Arabia may choose not to use this capacity since increasing oil prices will make their remaining oil reserves increase in value.
Forecast assumptions:
World total liquids supply declines at -0.5%/year and demand increases at 1.7%/year.(updated for new IEA Jan 2007 monthly report)
The demand growth comes mainly from China, Other Asia and Middle East while growth rates from OECD vary from 0.1% to 1.0%. These growth figures are based partly on the IEA monthly market reports. Liquids include crude oil, lease condensate, NGLs and processing gains. Although forecast demand is greater than supply, the gap is closed by increased price because ultimately demand must be approximately equal to supply.
Mild northern hemisphere winter weather is assumed to continue and the price forecast from Jan2007 to Jun2007 is assumed to be a simple linear regression forecast based on the oil price (SDR) historic trend from Jan2002 to Dec2006.
Price elasticity of oil demand is assumed to increase from 0.10 in Jul2007 to 0.52 in Dec2010. The elasticity is assumed to be the same for increasing and decreasing prices. Elasticities are assumed to constant for all countries. For an interesting paper on elasticities –
http://cta.ornl.gov/cta/Publications/Reports/ORNL_TM2005_45.pdf
The oil price is forecast is SDRs (Special Drawing Rights) which simulate a global currency. The USD has devalued significantly against the Euro during the last few years and oil price increases measured in the USD gives a distorted view. It is assumed that the USD:SDR exchange rate remains constant at 1.50 from Jan2007 to Dec2010. The SDR is explained in http://www.imf.org/external/np/fin/data/param_rms_mth.aspx
The time dimension unit of a month was selected because supply figures are given monthly. Demand data is quarterly and is assumed to be the same for each month in the quarter. Prices are assumed to be month end and are from http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm
“All Countries Spot Price FOB Weighted by Estimated Export Volume (Dollars per Barrel)”
Ace: "The time dimension unit of a month was selected because supply figures are given monthly."
Your Peak is the quarterly peak. The IEA monthly Peak 86.13-mbd. And it is July, not August.
You're right - peak liquids is July 2006 according to IEA and you.
I suppose it doesn't matter whether peak liquids is July or Aug 2006.
We could assume that World Peak Liquids has occured in the third quarter of 2006 (this should make the data from EIA and IEA agree) if Saudi Arabia's production cuts are involuntary. Other countries will not be able to offset Saudi Arabia's declining production.
Maybe I will open a bicycle store.
Ace, this is interesting stuff.
One observation - it seems your "All Liquids" are in fact all petroleum liquids and exclude syn-crude, bio-fuels etc. So I can't help but notice that your supply gap of around 7 mmbpd by 2010 is approximately equal to these sources as estimated by Michael Smith.
http://europe.theoildrum.com/node/2229#more
I liked your oil price forecast, but was a bit disappoited to see that this is based on linear extrapolation. Since around 2000, price has been closely linked to demand, moderated by surplus capacity - so a rather more sophisticated model should be possible.
I would agree with him, that "if" oil had peaked, it wouldn't take long for the price to go very high in a hurry. There would be some demand destruction, but the U.S., Canada, Australia, the EU, Japan, and China, among others, will bid oil much higher than it is now.
But oil has not peaked yet. In 3 years, maybe. But I have $1000 that says it hasn't peaked yet. So my money is where my convictions lie. I think Simmons has done a good job of being very cautious about calling peak, and I think this will come back to bite him.
If I am wrong, and we have peaked? I shudder to think about it.
Well we will peak sooner or later anyways, and probably fairly soon if it hasn't happened already. Humanity won't do squat until it is staring it straight in the face, so if peak is 2 years out we will just waste the extra time before it comes up from behind and bites the general public in the shorts.
My guess is that we are probably at a point where the world will want to consume a tad more than the world can produce in the summertime, but in the winter when demand is somewhat less the world can still keep up. It will be clearer this summer when demand is at peak again.
Robert, here is why I think KSA has peaked:
1. For the last few months, almost every month KSA has announced
production cuts. The decrease in production is now two times
what was mandated by their share of the OPEC quota.
2. They are unilaterally cutting oil supplies to Asian refinaries
and at the same time arguing that they are cutting production
because there is no demand for their crude oil :-)
3. Their oil production has been going down for 15 months now.
4. They have tripled the number of oil drilling rigs; this
indicates an intent to increase production; but the production
keeps falling which means that the decline is not voluntary.
5. They are massively expanding the infrastructure needed to
pump sea water in their oil wells. This again indicates an
intent to increase production which means that the production
decline is not voluntary.
6. Almost all of their major oil fields are more than 50 years
old.
And if KSA has peaked and Cantarrel is crashing and North Sea is declining at 7%, then the world has peaked.
For the last few months, almost every month KSA has announced
production cuts. The decrease in production is now two times
what was mandated by their share of the OPEC quota.
I think we will know something definitive later this summer. Right now, prices are headed back up, which should have them increasing production. However, crude inventories are still at very high levels and have lately been rising, so we may still be slightly oversupplied. When turnaround season is over in May, I think you will see Saudi production start to come back up (provided inventories have been pulled down some).
Robert, we see two sets of weekly numbers on U.S. inventories, and for obvious reasons KSA inventories [floating and otherwise] are pretty much opaque. Do we know if inventories in the rest of the world actually "very high?" This is an honest question. I don't what the answer, but would very much like to know. GJ
OECD inventories are known, and that gives a pretty good picture of a pretty large chunk of the developed world. But I haven't checked those inventories lately. I will do that tomorrow, but I am off to bed now.
Well, I stayed up a bit late because I was curious about OECD inventories. The last published information on OECD inventories was in September, and at that time they were at all time record levels and rising:
http://www.eia.doe.gov/emeu/ipsr/t15.xls
I think inventories really cloud the picture, because they indicate that the market is adequately supplied and therefore no additional production is needed. And the Saudis have mentioned their concern about high inventory levels. As I have said previously, if they have peaked, it certainly came at a convenient time for them: Right when demand suggested that their production should be lowered.
Not true. their production declined thru the spring and summer as prices peaked. Prices fell because world output did surge jul/aug, plus the goldman caper. SA cuts after nov 1 are legitimate only up to their allocated cut, but they recently announced output was around 8.5Mb/d, so output is now far less than the opec agreed level.
THey are not just increasing rigs 7x 04 levels but also hugely expanding their water injection facilities; recent contract expanding injection for two of Ghawar's six fields from 9Mb/d to 14Mb/d, and rising fast as production continues to fall. (If each of these two fields are still producing 1Mb/d, then the output will be 1Mb oil + 6Mb water for a 6/7 water cut.) Their horizontals, which did manage to maintain production as water level approached the gas cap, are fast watering out. All the fields are old, all in decline, no new fields, the great hope is to resurrect old abandoned fields.
THinking sa has not peaked requires a kind of religious faith, believing what you desperately want to believe and ignoring all evidence to the contrary. These guys are proven liars... last spring they said 'prices are too high', and 'nobody wants to buy our oil', as prices surged to record after record.
All the king's horses and all the king's men...
Not true. their production declined thru the spring and summer as prices peaked. Prices fell because world output did surge jul/aug,...
You, like many others, are focused on price and ignoring inventories - a very big part of the puzzle. What were inventories doing during that production decline? Not only were they are record levels, but 1). They were increasing; and 2). We were headed into turnaround season. So, as I said, very convenient for them that their production decline occurred just as we didn't need the oil. The cuts started when inventories were very full (as I demonstrated in my response to Jeffrey in our debate) and continued through falling prices. To date, they have made no production moves that didn't make sense in light of the inventory/pricing picture.
THinking sa has not peaked requires a kind of religious faith, believing what you desperately want to believe and ignoring all evidence to the contrary.
Just the opposite in fact. Religious faith sometimes requires one to ignore certain aspects of evidence that may happen to be inconvenient for the faith. You are ignoring certain aspects of evidence. Those who think Saudi has peaked need to point to some production moves that they have made that just didn't make sense given the market. For instance, if you can point me to either 1) Very low and falling inventories; or 2). Average inventories and rising prices; and KSA not increasing production, that would be support in your favor. But that's not what happened.
Absolutely I am focused on price... that is the point of the opec cartel, and all of its members. SA in particular is in great need of dollars, having run deficits for many years. That they were selling less and less as price rose to its peak is very telling to most.
But, you wish to focus on inventories rather than price. As an aside, the market tolerated high inventories because of the sea change to contango, or higher future prices, a previously very rare condition through the 100 year age of oil, and very sophisticated saudis were of course aware of this. But lets focus on your concern that sa cut because of a concern that inventories were too high: Around 2/10 US inventories did rise to 05 highs (1,025B - a level that did not trigger cuts by saudis in 05), then fell through mid april to 05 avg level (1,000B), and only got back to 1,025B in early june. Meanwhile, price was running amok, and sa output was steadily falling from jan. Regarding OECD inventories, which include the US, EIA was reporting last summer that inventories were at a ten-year low, and had fallen one day's cover from 05 levels. There is absolutely no basis for thinking that inventories were a saudi concern before they began to worry the market in aug.
It is true that from early june US inventories rose to a very high level, reaching around 1,090B in mid oct, only to fall back to 05 highs by dec. The reason for the final surge in inventories is now apparent, jul/aug were anomolous high production months... meaning that various producers had no problem selling more crude than they had ever done before, even as sa claimed to have no buyers for their oil.
It is absolutely clear that sa had no spare supply in 1H06 (probably thru oct), and that they were cutting involuntarily. Note that every other opec member was in fact encouraged by the cartel, meaning sa, to pump every barrel possible to control runaway prices. Indeed, that production was flat at 9.5Mb for so long, indicative to some that they had spare capacity, is now indicative to me that they may have been running down their own storage to capture very high prices.
This says nothing about what they will be able to do in the future. They are indeed making great efforts, albeit so far with no apparent result (but we might assume that in the absence of the great efforts, which began in late 04, production would be lower than actual). As WT says, Texas also made great efforts and were truly surprised that production fell anyway in the early seventies. Perhaps there is a growing acceptance at the higher levels in SA, obviously not elsewhere, which is as desired.
I would be more convinced of their future capability if they were developing new fields. Given that none are even on the horizon, the evidence at hand is compelling to me that we are in the twilight zone.
I noticed that you accept peak in 3 years, but not now. Geology and past production is what it is.
But, you wish to focus on inventories rather than price.
It is not one or the other. It's both. High price with high and rising inventories means production has to come down.
There is absolutely no basis for thinking that inventories were a saudi concern before they began to worry the market in aug.
Other than the facts that U.S. inventories were at record levels, and the Saudis actually mentioned inventory levels when making their cuts?
It is absolutely clear that sa had no spare supply in 1H06 (probably thru oct), and that they were cutting involuntarily.
No, it isn't. That is exactly the time period of record and climbing inventories. It wasn't in June. That business was going on in January. Check for yourself. I highlighted it in my response to Jeffrey.
It is true that from early june US inventories rose to a very high level...
Check earlier than that.
I noticed that you accept peak in 3 years, but not now.
That's not what I say. I say it might be in as little as 3 years. The picture is fuzzier beyond that. But supply/demand imbalances are likely to continue.
Inventories rise in this environment if large numbers of people believe it is cheaper to buy and hold today than to buy tomorrow. In short, inventories rise when supply becomes constrained as a means of hedging against further price increases. Look at the few airlines that have been doing this and their profitability versus competitors that failed to do this. Also this is typically the lowest consumption quarter of the 4 for the US, at least, and perhaps Europe as well. So if I was going to hedge, now would be a good time to hedge against the summer and fall months.
I don't think you can draw conclusions about whether we are at peak based on inventories, Robert. I don't think you can do that at all. In fact, the classic market prediction would be for rising inventories, at least initially post-peak, precisely to hedge until supply fell so far and prices rose so far that the hedges were wiped out. But immediately and with a very slow initial decline rate? I don't think so and I believe it is incumbent upon you to explain why this such atypical market behavior should be expected to support your conclusion.
I don't think you can draw conclusions about whether we are at peak based on inventories, Robert.
If inventories are at very high levels, and rising, production must come down. That was exactly the case when the Saudis cut production. It wasn't just that inventories were high, they were rising and the U.S. was going into turnaround season. Despite that, inventories continued to rise, which supports the Saudis decision to cut. There were ample supplies.
Occam's Razor. You are ignoring statements from multiple organizations that they are deliberately hedging against higher prices. The most obvious explanation of higher inventories even when going into turnaround season is exactly the one given - people are hedging!!
Note that hedging is a direct response to rising prices and does not directly take into account supply. Now of course supply ultimately affects prices but it's not the only (or even most direct) explanation for either rising or falling inventories.
It doesn't matter if they are hedging. If production is X, and inventories are increasing, then production must go lower than X as inventories continue to go up. The fact that inventories continued to rise even after the Saudis cut production is ample evidence that their cuts were warranted. And of course very soon after that prices did fall off by quite a bit. I think the preponderance of evidence supports the Saudi explanation. I have yet to see anything they did that didn't fit into the inventory/price picture.
It depends on what you see as the cause and what is the effect. Rising inventories could be the effect of dropping production, as GreyZone says, as a hedge against the continuing contango in the market. I doubt if data is good enough to tease out the difference between one and the other, but I don't see how one can unequivocally see it as production dropping because of inventories rising rather than the other way arouond.
Inventories were rising before the production drop. This supports an inventory build as a hedge against further rise in price and the contango reflects the increased costs of carry.
Where is the sell through? I run a cartel. I control my price as I control supply. If I see an inventory build then my supply has outpaced the market and the growing inventory threatens to disrupt the market by impairing my ability to exert control over supply and therefore price. If I see that I am giving up control is not my incentive to throttle back production?
Why is the market not in backwardation? Insufficient final demand likely due to a slow start to winter and the delayed impacts of prior high prices. Back in September I decided not to drive out to see Aunt Suzie because it cost too much.
A very interesting figure would be the amount of working inventory vs any past year increase in "speculative inventory," inventory additional to the normal supply chain.
Cheers!
Greyzone: I am not sure I follow your argument.
During the past year we observed a steady ramp up in price.
Some portion of that price increase was organizations seeking to hedge against further future price increases by making purchases for inventory.
The supply chain was not prepared to meet both anticipated normal demand and the increased demand due to hedging activity.
The attempt to build inventory drove further price increases (which appeared to justify the investment in inventory) until such time as physical inventory reached capacity at which point demand returned to a lower level and the price fell to the clearing price.
Since the rising price had created the incentive for additional supply the market now found itself in surplus. This surplus would have been exacerbated by stocks released from inventory when market oversupply became apparent.
This seems to be a reasonable fit with the facts and it also satisfies Occam's Razor as we have no need to postulate a global conspiracy, KSA antipathy for Iran, or much else beyond straightforward greed. It is much the same play that is being observed in the housing market but in a different sector.
Would this agree with what you are trying to describe?
Cheers!
EDIT added Greyzone's name to avoid confusion with Robert's post.
I think its incorrect to look at OECD supply levels and assume that the market is well supplied if the market is in contango. I'd have to guess that most of the people in the oil business recognize that oil supplies are tight and any over supply for the foreseable future is temporary at best. They need only be aware of both Mexico and Iran not full Peak Oil. Robert maybe you could comment on the view from top insiders on the refining side of the industry.
I have to think that most people expect a long term contango market and if so they will keep supplies high basically forever. So the next time we have low oil supplies in the wealthy OECD countries we probably won't be far from real shortages and major price spikes
i.e 300 bbl oil.
I don't understand why anyone would expect supplies to drop ? I just don't see any reason at all for it to happen until we start hitting actual shortages.
If anything the fact that everyone is keeping their tanks full regardless of the recent price flux it should be a major warning that something is up.
Another insider piece of information that would be useful is how often have contract deliveries been missed lately which means probably that a purchase is made on the spot market.
Thus a number that might be very very interesting is how many of the spot contracts are actually used to take real delivery of oil ? And how has it changed over time.
If we are seeing a significant rise in the number of real barrels of oil sold on the open market then we know that we are having supply problems NOW. ( sorry for the caps )
I think this may be important.
Inventory is not important except in the broad sense that the market is in contango.
If we actually see dropping inventories and high prices ...
Oil is a slippery business, and inventory plays a very direct role in production - after you have filled the pipeline, the storage tanks, the tankers, the refinery storage tanks, the local gas station storage tanks, and your own gas tank, what now? Lower production is the only realistic answer.
This winter was as 'unanticipated' as the 2005 hurricane season. There was a lot of demand destruction, simply due to higher temperatures. To give you an idea, January 2007 in this region was 5° C (about 10° F) higher than normal - that is a lot of degree days heating sitting in various storage tanks (Germany is also a major user of heating oil on the world market - though it is attempting to reduce the amount as a matter of policy). Just yesterday, the region's natural gas distributor announced plans to reduce prices by approximately 50 euros over a year for a typical family soon - a lot of planning involving long term amounts/prices/storage has simply been ruined by what is happening outside the window.
And if the weather turns viciously, so that instead of 5° over normal it becomes 8° under normal in March, the system will gyrate again.
One of my reasons to believe we are at peak is how the whipsawing is becoming ever more difficult to explain without an overarching connection. There may be a number of reasons for Saudi Arabia's currently declining production, but none of the publicly available information from various sources seem to provide a coherent reason for various contradictory goals (prop prices up to help Iran? reduce production to help the U.S. economy? promise to flood the market 'soon' while consistently cutting production and actually providing less than contractually agreed to amounts?), unless you tend to believe that oil fields/regions go into a permanent geological decline at some point
And yes, economic demand, in part reflected through inventories, plays a role in production which has nothing much to do with price in terms of futures markets.
Oil production can decline faster than some theoretical maximum rate if the demand doesn't exist - full storage tanks tend to show that demand is not high enough at the moment.
The thing is, peak oil is not an economic game, it is a geological one - as the British seem to be waking up to. Regardless of British fiscal planning, those anticipated oil exports in 2008 are unlikely to happen, unless they reduce internal demand by a significant percentage, and then it do again year after year - geology meets economics, and as always, the economists will come up with a reason why it doesn't matter - substitution? new technologies? fairy fossil mother? Economists simply explaining away reality in a blizzard of terms, technicalities, and statistics is virtually a natural law itself.
Article in this weeks Business Week indicates that banks and hedge funds with storage capacity were this past summer purchasing for inventory and able to immediately sell forward for a 50% gain. If market was close to balance this diversion to inventory would have assisted in driving up the price.
Article is a little light on data but it also suggests that a hedge fund may recently have been in trouble and was liquidating inventory. If accurate this may have contributed to recent price weakness. Note that this form of market intervention (financial institutions purchasing for inventory rather than trading contracts) is relatively recent and would be disruptive to normal pricing mechanisms as the supply chain would not have anticipated such diversions to inventory.
KSA withdrawal of supply is curious and difficult to explain. It may be the case that KSA seeks to create room for alternate supply and avoid a degree of over supply that might collapse current price environment.
It may also be the case that they have become much more sophisticated in seeking ways to maximize revenue from what they know is both a non-renewable resource and their single source of earnings (excluding Hajj income).
I like the old Scots verdict - case not proven. But very interesting to watch.
I think its incorrect to look at OECD supply levels and assume that the market is well supplied if the market is in contango.
The market right now is well supplied. That may change 6 months out, but right now there is sufficient capacity.
I don't understand why anyone would expect supplies to drop ?
I think what would happen is that if KSA had peaked and taken a large amount of supply off market, combined with Mexico's peak, prices would start to climb back up as the supply shortfall was felt (they would scream upward if it was known that KSA had peaked) and at some point, suppliers are going to wonder why they are keeping such high inventories. That's a lot of money tied up in those tanks. Then, they allow inventories to be drawn down to historical levels. Now they are back to making their normal purchases. If supply is short, now is when you will see prices really climb, as the shortfall becomes apparent.
The simple question that always pops in my head when you say the markets are well or over-supplied, is this...Why is oil still hovering around $60 a barrel? It should be dropping like a rock in an over-supplied market. Or has it just become that much more expensive to suck out or refine a barrel of oil these days?
For support to the discussion:
I ain’t seeing no Peak
An imminent peak is not consistent with record high level of inventories. Inventories are the buffer between supply and demand and would be the first to melt before demand in case of faulty supply. Note that the stockpiles contain only 47 days of world consumption and would react pretty quickly to any significant disruption.
Note: something strange in the EIA spreadsheet, the sum of the columns does not match the number given in the total column.
My personal take on inventories is that it is a reflection of the contango in the oil futures. If you have storage capacity, you can currently lock in a 10% annualized return by buying spot and selling forward 9 months. This a pretty good return for basically a large cylinder of steel plates. I predict that inventories will enter a period where they are high by historical standards because easy money can be made.
Related to Simmons "Crossing the Rubicon", my gut feeling is that he is on target this time. I also feel that we have been and will be lucky in that for 2 winters there has been weakened demand that has masked supply shortcomings. We have very likely entered a logistical plateau that will merge into a geological peak. A slow squeeze until 2011-2012 when the bottom falls out....
Many don't realize the power of contango, always the case with gold but extremely rare in oil over the past century... it used to be that punters always were betting oil would fall, it is now reversed. Refiners can of course keep the tank full to sell at the higher price, but they are in the business of refining oil. Even more sensible to keep the tank full if you are convinced that the future price is higher, and some might even be wondering how high, even tho the futures supposedly have the answer. The far east is seeing their supplies curtailed, I wonder if they are beginning to think their tank should always be full, and maybe they don't have enough tanks. China, etc, are not just running around the world tying up future supplies, they are building their own spr's... many players look ever more doubtful of future supplies.
In the seventies concern about the availability of gasoline at any price prompted US motorists to keep the tank full; having all tanks 3/4 full instead of 1/2 full took supplies from critical to crisis. As we near peak we will see more in storage, not less. I see us going off the cliff with refiners' tanks full and prices so high that more and more motorists have theirs empty.
Everything at the moment is pointing to a nearby peak except price, and the latter is increasing its volatility; one must remember that volitile means both up and down. We are in new territory, the market will eventually get used to high storage coupled with high prices.
I wonder if we'll see Cheech and Chong again, stealing gas by syphoning while smoking gigantic dubies.
I hate going to the gas station, so I used to wait until I was running on fumes to fill up.
But ever since Katrina, I keep the tank at least half-full at all times.
Still unusual... you are po aware, so are one of the hoarders. Our group is getting larger every day.
It used to be that I could go to my account and ask to view responses to my posts, but now I just get referred to the articles. Will we get the ability to see responses again at some point?
Nice graph.
But I wonder...isn't hoarding something you'd expect to see at peak? That happened when there was a steel shortage a couple of years ago. Companies started hoarding it, for fear of price jumps or outright shortage.
The U.S. is increasing their SPR, and countries that never had them are creating them. Perhaps they aren't the only ones stocking up while the price is relatively low?
The first pricing signs of peak oil are here. The forward oil curve is in perfect contango. Some of the recent downside price action is due to unwinding forward rolling positions by institutional investors. In the good old days of backwardation, rolling forward was fine way to make money. Now is it a bet on volatility.
Leanan wrote:
But I wonder...isn't hoarding something you'd expect to see at peak?
Absolutely. And so are production cuts in order to develop spare capacity. At least, by players with a long view.
BTW hoarding is deferred supply. And, it will tend to stablize prices medium term, in my view.
No opec member has ever cut production to increase spare capacity in the face of high and rising prices. At least thru aug last year all opec members were encouraged by the cartel (read sa) to produce every barrel possible to help control runaway prices.
Which in itself would be a point arguing that we were not at peak last summer.
In general, as we pass peak, people will -- I expect -- find all kinds of reasons to keep oil in the ground. And what they say and encourage others to do will have little relation to that fact.
No supplier outside the cartel has ever preferred to keep oil in the ground, and even in this case the individual member hardly 'preferred' to do so, but grudgingly did so only to encourage their partners to do so, too.
As for as last summer, we were at peak supply, certainly for a two-month period, jul/aug, which is what caused storage to go so high. Peak oil hardly means peak price, which can only come post peak. It is hard to say whether the highest inflation adjusted price will come shortly after peak, as the world becomes po aware and begins to adjust to falling supply (which does not necessarily mean falling stocks), or whether highest price will come later, with even less supply but more solutions.
No supplier outside the cartel has ever preferred to keep oil in the ground...
In a world of plenty, of course not. It made no sense.
Don't forget, the US peak occured in an oil-soaked world.
In a world of scarcity, everything changes. I read somewhere (don't have a link) that some Canadian companies were dragging their feet developing leases. And the analyst could not understand why.
To me it seems rather obvious.
Many have pointed out that many companies are not investing that much in new production despite having record profits. They could obviously can afford to invest more, much more
But it doesn't make economic sense. One can afford to just sit tight.
Each individual company has it's own peak and could be ultimately staring it's own death in the face. Don't believe for a minute they don't know it.
"Each individual company has it's own peak and could be ultimately staring it's own death in the face. Don't believe for a minute they don't know it."
A voice of reason... so sweet but so rare. My reading on most people is that they will believe whatever it takes to assure themselves that "this is not happening!". Some here even seem to believe that KSA will flood the market with $5/barrel oil to ruin Iran economically. And as a side effect gas will go under 98 cents per gallon... :-)
Do you happen to know when BP might be peaking based on their current contracts? I wonder if the development of their alternative energy business is based on a rather well understood winding-down scenario of their oil business?
Do you happen to know when BP might be peaking based on their current contracts? I wonder if the development of their alternative energy business is based on a rather well understood winding-down scenario of their oil business?
Can't help you there. Most of the company peaks I've heard quoted came from a single investment analyst/guru dude who was supposedly a peak oiler. I couldn't bring myself to trust him since he was clearly touting various stocks.
I recall that he thought Encana would peak (natural gas) in 2020 and that he thought most would crest sooner. He didn't run down a list of the majors and quote peaks for each. But he definitely acted as though he access to that info, the bastard.
I'd expect to see inventories decline only once we start down the backside. In the run-up to the peak, and at peak itself, I'd expect that everyone who could would be building (or at least maintaining) their inventories in preparation.
What does the graph of inventory/consumption (i.e. days of consumption in storage) look like for the same period? It looks to me like it has been consistently declining for the last 20 years. How would that factor into the discussion?
Something odd here... EIA reported last summer that oecd inventories were at a ten year low, with one day cover less than a year earlier...
Khebab,
Two comments:
(1) We probably want to look at commercial crude oil stocks relative to consumption. Note that crude oil consumption is up by about 8% since just 1997. Also, I think that the graph includes SPR stocks.
On a Days Supply basis, US commercial crude oil stocks have fallen by 19% from January, 1987 to January, 2007 (average of first four weeks in both cases), from 25.9 days to 20.9 days.
(2) We have only seen, through October, a slight (1% more or less) drop in crude + condensate production. Which areas are likely to see forced conservation, areas where per capita income is measured in hundreds of dollars per year, or areas like the OECD countries, where per capita income is much higher?
In other words, OECD stocks are remaining adequate because of forced conservation in poorer countries. However, IMO the forced conservation is moving "up the food chain."
I noted, on the open thread, that since May, 2005 the world has consumed about 44 Gb of crude + condensate, which is equivalent to about four Prudhoe Bay Fields. Based on Deffeyes' HL plot we have consumed more than 4% of our total remaining conventional recoverable crude + condensate reserves, just since May, 2005.
http://www.energybulletin.net/22775.html
Published on 18 Nov 2006 by Wall St Journal. Archived on 23 Nov 2006.
As Fuel Prices Soar, A Country Unravels
by Chip Cummins
Conakry, Guinea
I agree, according to the EIA 35% of the OECD stocks are Government-Controlled (100% for Japan). Emergency stocks should be excluded.
Khebab
What accounts for the difference between these figures by EIA and those tracked by the IEA under "OECD Total Industry Oil Stocks" at 2700 plus million barrels?
I guess they don't include Government-controlled stocks.
The data for the graph that i post at TOD and our website totals 4206 million barrels (Mb) or 85 days forward demand according to IEA. In Nov it was comprised of 54 days (2712 Mb) industrial stocks and 30 days (1494 Mb) gov't controlled stocks (80% is crude). Approx 35% of the industrial stocks is crude. Not shown below is a continued drawdown of the inventory in december as well.
Again in this graph, we can see that the 1.65-mbd surplus production (April to September) had no where to go. Inventories were at record levels already. Nowhere. And the price had to crash to bargain buyers...
We may have an answer in April. When the Nigerian presidential election heats up you may see a disruption of oil production. MEND recently released 125 people from prison and all indications point to a battle over the control of oil revenue. If Nigerian production is cut, Saudi Arabia may be forced to make up the difference.
Uhh...which begs the question, RR: What do you think we can realistically accomplish in 3 years that might have any impact?
What do you think we can realistically accomplish in 3 years that might have any impact?
We can lease our SUV's instead of purchasing them ;-)
Uhh...which begs the question, RR: What do you think we can realistically accomplish in 3 years that might have any impact?
Oh, nothing. It will certainly take longer than 3 years to prepare. But I would still rather face it 3 years from now than this year.
Funny; I wouldn't have figured you for a procrastinator.
I'm not. But just like I am going to die some day, I would just as soon it not be this year. I would like to put that off for a bit as well, despite the fact that I will have to face it sooner or later.
One way that people prepare for death is life insurance. I wonder if Gail the Actuary could tell us what Peak Oil insurance might look like?
AFAIK, there is no "Peak Oil" insurance as such. There are specialty types of coverages, such as "rain insurance" for a big event and coverage relating to someone actually kicking a field goal in a Punt Pass and Kick promotion. Theoretically, some organization like Lloyds of London could sell Peak Oil insurance, that would pay simply if Peak Oil occurred, using some agreed-upon definition. The buyer of the insurance would need to prove that he/it had some type of insurable interest, that is, suffered some loss, if Peak Oil occurred. Because this would be difficult to prove, I don't expect Peak Oil to be an insurance coverage, but it could be an object of a bet.
Regarding life insurance, a person concerned about dying because of peak oil could purchase term life insurance (perhaps five or ten year renewable term, so that the coverage is locked in). The problem I would see with this approach is that if peak oil impacts are serious enough that the insurance purchaser dies as a result, there is a good chance that the insurance company will not be around to pay. Even backup systems, such as guarantee funds, may not continue to work. Alternatively, if the insurance company is around, the dollar may be worth so little that the proceeds are hardly worthwhile.
I have a hard time believing that the current financial system - including insurance - will hold up well under peak oil. There are likely to be way too many defaults on debts.
Couldn't you get one of the financial betting companies like IG Index in London, or one of the Internet event-probability markets, to set a spread on (say) the difference between annual production in 2007 and 2008, from some suitably independent source like OGJ or World Oil or the BP Statistical Review? Good luck pricing that...
I would have to agree that insurance companies would be among the first ones to go after TSHTF. I wouldn't expect the stock markets to survive either. Any gold for example, if only on paper, will probably be good only for wiping and burning purposes. I would also expect that at least some countries would make it illegal for any foreigners to own anything, making your shares null and void.
I've never been a big fan of stock markets and I don't own a single share, but if I did I would have either sold my shares already or I would keep a huge red *EJECT* button with me at all times.
When it comes to Oil production.. I don't expect it to crash very rapidly, although I am quite aware that even a slow decline would and will be devastating. What *can* crash very rapidly, In My Honest Opinion, is 'all liquids'. Producing fuel from various sources makes sense even with negative net energy if there's plenty of surplus energy to go around. Some or even many of these fuel projects become nightmares when the amount of spare energy plunges.
I have a *feeling* we could have a nice statistical anomaly where all liquids drops from around 85 million barrels per day to somewhere around 78-82 without actually losing much or any NET energy. We might even have more net energy available? Please hit me with a comment or two.
I am with you on even a small decline being devastating for several reasons:
1. Our imports are likely to decline more than total world production, because exporters will keep a larger share and because of geopolitical forces.
2. Declines in natural gas seem likely, at least for North America, in the next few years. Thus, there will be a combined impact.
3. Our economy is geared toward growth. There is a huge amount of debt outstanding. A decline in oil (or oil and natural gas) is likely to result in many bankruptcies, because the planned-for growth isn't there. If the government guarantees all the debt, we will have massive inflation. If it doesn't, we will have banks and insurance companies failing.
Gail
A poster on another board has this byline.
I think it captures what you said.
Our Pending Energy Supply Contraction
= No Economic Growth
= No Debt Service
= Chaos.
Gail, What do the Professional People in your industry think of this stuff?
What was link to the article you wrote again?
John
Samsara:
I think the insurance industry is still very peak oil un-aware. I have run into a few more people who are peak oil aware recently, however.
The article I wrote a few months ago was Oil Shortages: The Next Katrina? It was about oil shortages and peak oil, and aimed at insurance executives of all types.
I hope to have another article published in May titled "Our Finite World: Implications for Actuaries". It talks about the fact that we are reaching the earth's limits in many areas, including oil, natural gas, fresh water, and (in a different way) climate change. The ususal actuarial assumptions assume that there are no limits to growth, but these are no longer true. I submitted this article to Contingencies, a publication sent to actuaries of all types (life, pension, property-casualty).
Robert, correct me if I'm wrong, but you seem to be wavering somewhat. It seems to me you are accepting a sooner peak rather than a later one. Has something changed in your thinking that you're not sharing with us?
Hi Robert,
Thanks, and I don't quite understand your reply (I'm not so good at detecting sarcasm). I mean the first sentence.
Yes, it will take longer than three years. I'm wondering, though - nothing at all? Not even a short list of top 5 oil industry experts recommendations? All set to go in case you are interviewed? Or, decide to put out a statement or petition? Or anything else? We (the expert "we", the collective TOD "we" or...?)
I'm wondering, though - nothing at all? Not even a short list of top 5 oil industry experts recommendations?
I think what you are going to get - even from oil industry experts - are pleas and advice to conserve. The politicians will stall for time, suggesting that cellulosic ethanol is just around the corner but we have to survive the next 3-5 difficult years. Best case scenario the decline rate is slow, giving us more time to adjust.
But what else could we do if peak is on top of us? We have wasted those opportunities. If I had the power to do it - even given 3 years - I think I could start implementing the policies we need to survive this nightmare. But within the political system, I see gridlock on this issue even as we drive off the cliff.
Commuters can share rides tomorrow and it will have an enormous impact. We can lower the speed limit and it will have an enormous impact. More of us can ride the bus and trains and it will have an enormous impact. We can raise the gas tax by a dollar a gallon and it will have an enormous impact.
All of these are measures which are available to individuals and the administration right now. They will take no time (on the three year time scale) to implement.
In three years people will have replaced roughly 25% of their vehicles. This could lower consumption by over 5% if there were enough incentives to phase SUVs out.
In three years most home owners can insulate their homes and save 20% heating oil.
In three years many home owners can install solar water heaters and save natural gas.
Three years is a long time to get active.
I have a 12-gauge shotgun and some magnum shells. When TSHTF, I can point said shotgun at my head and pull the trigger. It will have an enormous impact.
>But oil has not peaked yet. In 3 years, maybe. But I have $1000 that says it hasn't peaked yet. So my money is where my convictions lie.
Well that's not much of a bet, since if you're wrong, a thousand USD isn't probably going to be worth very much.
If prices rise back into the $70's this summer when season demand increases, and production continues to fall, it will be pretty obvious that we past peak.
FWIW: I don't believe $300/bbl is in our near future. Demand destruction will kick in well before demand can support at $300/bbl. I suspect that the pain will kick in when the price rises above $85 to $95. Prices would likely plateau as consumers are simply priced out of the market.
Yea prices are hard (impossible) to predict, I guess Simmons does it cause its what people like Bloomberg want to hear and its an easy way to convey the magnitude of attention that he thinks needs to be paid. How demand destruction will work (elasticity etc) is one of the big unknowns. It will vary by country a lot, but also within the US. Many people wouldn't flinch at 4-5 bucks a gallon for gas, many would but taking them off the road in carpools or however would make it more easy for others to drive more. Around here, it is the congestion that keeps people from driving more than cost.
Dynamic systems (i.e. any real system) are pretty much impossible to predict, unless you start holding things constant ("ceteris paribus", the famous neo-classical method of turning one's back to the real world). $350/barrel pricing on oil would--using current price trends to project, not predict--most likely result in gas prices of about $18/gallon. Demand throughout the world would probably result in demand destruction in many places.
Most Americans will probably keep on driving for a while, even at these prices. Remember, the average person's response to incredibly high prices will likely be "this is only temporary," and they will do anything to keep their job (because they are barely staying afloat on their mortgage and credit card debt payments). In 2005, the average consumer expenditure by household for gas consumption (broken down into quintiles of income earners) were as follows:
1st Quintile: $882
2nd Quintile: $1485
3rd Quintile: $1997
4th Quintile: $2518
5th Quintile: $3182
I hate averages (they really fail to paint a useful picture in most cases), but in 2005, the average consumer spent about $2000 on gas. If the average gas price jumped from $2.50/gallon to $18 gallon--and US households curtailed their driving by half (which I think is a reasonable estimate)--they would be paying roughly $7200 a year for gasoline ($600/month). These are all projections, but I don't think they are entirely meaningless. These high prices are bad, but most Americans would figure out a way to keep driving (and I'm sure state and federal governments will be giving everyone--not just business "owners"--tax breaks for gasoline expenditures).
The real questions that need to be addressed are in food production and pricing. This is an area that keeps me awake at night--the official projections (USDA) are horribly inaccurate (I blame their orthodox economists). And all of this doesn't even being to consider rising personal debt, stagnating wages for the bottom 90% of income earners, the great real estate and financial derivatives fraud, and rising US inflation. That's enough for now.
"These high prices are bad, but most Americans would figure out a way to keep driving (and I'm sure state and federal governments will be giving everyone--not just business "owners"--tax breaks for gasoline expenditures)."
Ahhh... the federal government will come to the rescue. Ain't that the eternal American hope that resurges after every dissapointment?
:-)
I think you overestimate the hungry person's will to "keep driving". If the choice is between paying the rent and driving or having food on the table and driving, 99 out of 100 will opt for rent and food. The one person who does not will become homeless and sleep in the car.
You should be worried about resale value of your car. Pretty soon there will be more used cars on the market than anyone will want to buy.
I think spikes to 300 are entirely possible. I agree that the average price will probably be less.
Its a safe bet that war will break out in a oil producing region soon after peak oil with Iran/Mexico tied for number one choice followed by Nigeria Venezuela and KSA.
Also realize that by 2010 if not sooner we will have a NG crisis in North America and potentially in Europe. This means a lot of factories switching back to residual oil.
So the additional effects of high NG prices could send prices zooming to 300 level without a spike.
I think its far safer bet to assume insanity post peak.
Now with that said I don't think that running off into the woods is the answer I think
that small towns and cities with plenty of water and agricultural land preferably with at least some of the electricity generated by coal or nuclear are a good idea.
For example post peak I think the smaller cities of the lower Mississippi basin will do well post peak. They have their problems but generally they are located in natural city sites. A problem with them is lack of public transport but I'm hoping that a switch back to trolley cars can be done cheaply in most of the smaller cities and towns.
A lot of the Canadian cities might do well also. Also outside of the US some of the regions of smaller cities and towns in Europe are probably in a good position to profit from local resources. Parts of South America probably will do well in the long run but I'd expect major problems in the short term.
Basically my criteria is.
1.) Access to reliable power Nuclear/NG/Coal/Hydro
2.) Population density low relative to local agriculture.
3.) Preferably 100 or more miles away from a major city of 1 million or more
4.) Decent manufacturing/machine shops
5.) Decent education level
7.) A nice to have is some sort of critical industry weapons plant for example
Buffalo New York stands out using these criteria for example.
You have to assume that law/order will remain reasonably well in these places.
Now if your really concerned you and have the money you could add a small retreat near enough to your place to reach with say a half a tank of gas as insurance.
But I'm not sure how much help this will be if things break down in small towns.
And I just don't see it getting that bad their is no reason. Demand destruction riots and war and the resulting economic problems will quickly reduce demand for oil.
It will be scarce at that point mainly because of supply disruptions caused by war not shortages and I suspect the bulk of it will be taken by the strongest countries.
So I think you will see that the US will continue to have plenty of oil for core needs it just won't be for sale and the waste will be zero.
In the US riots in the larger cities and the formation free fire zones in the larger cities will probably be the biggest issue along with refugees at the southern border.
Individually outside of the big cities I think the biggest effect will be cars and roads will disappear at surprising rates with maybe a bit of electric car penetration. But I'd be surprised if we will be willing to waste asphalt paving roads. This of course means suburbia as we know it probably will cease to exist quickly. We will finally move to mass electric transport in a big way but it will be too late to prevent serious hardship.
So at least for western nations we will see continuous resource wars major economic loss and dislocations caused by the collapse of the car culture. Along with probably horrendous conditions in most of our major cities or at least parts of them with essentially localized rebellions and starvation. But other than that we should be ok.
It may sound bad but really its not. Consider what will happen in India and China and you see what I mean.
Sorry for the long diatribe but even if peak oil is 3 years away I think its time to start really discussing the implications. I cannot see it causing the end of civilization at least in the western countries a lot of pain yes.
HI m,
"I think its time to start really discussing the implications."
Okay. And, perhaps, action plans?
Hello Aniya,
Here is an action plan [linked below], but first a few words about the excellent qualifications of the author, Nathan Lewis:
--------------------------------------------------------------------
Nathan Lewis was formerly the Chief International Economist of a firm that provides investment advice to institutional investors. Today, he is part of the investing team at an asset-management company. He has written for the Financial Times, Asian Wall Street Journal, Daily Yomiuri, Japan Times, Pravda, Dow Jones Newswires, and other publications. He has appeared on financial programs in the US, Asia, and the Middle East.
He writes about economics and other matters from time to time at his website, New World Economics.
----------------------------------------
http://www.dailyreckoning.com.au/backpacks-2007/2007/01/12/
I think it is safe to assume that he is aware of Richard Rainwater.
EDIT: I think it is safe to assume that he is fully aware of Richard Rainwater's Biosolar Action Plan.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
I've been to India. I doubt if most of the population would even notice if oil or gasoline was unavailable.
I've made that point before about Africa - a large portion of the population won't notice peak oil (unless they have a famine somewhere and notice food aid is much harder to come by).
By and large it will be a problem for (1) people who are well off enough to afford large cars but not well off enough to afford rising fuel prices, and (2) people who are struggling to afford food - these are the people who get to "adjust" to peak oil for the first few years (and the second are going to be pissed off as rising demand for ethanol makes basic food items unaffordable to them).
Except for people who can't afford fuel for cooking.
Or hospitals that can't afford diesel for their generators.
Or towns that get critical food/medicine trucked in.
Or farmers that can't afford fuel for their tractors.
Poor people will be the first ones effected by higher oil prices.
absolutley. look at Iraq for example. Oops, not just poor but occupied.
You should spend some time in Africa.
I'm talking about people who are subsistence farmers. Their fuel is wood. They can't afford hospitals. They can't afford food that is trucked in. They don't have tractors and have probably never seen one.
Peak oil is not a factor for quite a large number of people at the very top and very bottom of the economic ladder. You don't even recognise that the people who are really at the bottom of the ladder even exist...
Large portions of inland China as well. The water buffalo is still alive and well on many Chinese farms and cooking is done with coal brickets. Even the trains use coal in their galleys for cooking. A lot of commerce is carried out on tricycles. I've even seen a pay-as-you-go Porta-Potty perched on a trike. Commerce does find a way.
If the lights go out many Chinese are going to miss their satellite TV. That's the one luxury all but the poorest can afford.
"I've been to India. I doubt if most of the population would even notice if oil or gasoline was unavailable."
I was born in India. I can assure you that most of the population would immediately notice if oil products were unavailable. Most of the poor people in India use kerosene for cooking. Deforestation is a huge problem and in most parts of the country there is simply no more firewood. Poor people don't have cars and are completely dependent on public transportation which is mostly powered by diesel. Large parts of rural India have no municipal water supplies and water is delivered by the government via tanker trucks.
Hi Suyog, aren't India's fuel supplies currently heavily subsidized? Being a net importer, I'm wondering how how long India would be able to continue this practice until passing some of it onto the consumer. Do you have a take on the present situation over there?
"Hi Suyog, aren't India's fuel supplies currently heavily subsidized?"
Petrol & diesel are not subsidized but heavily taxed. Petrol in India is approximately Rs 50/liter which is about $4/gallon (1 US $ = Rs 44). However, kerosene is subsidized since it is used by poor people for cooking. I think it is Rs 18/liter. However, it is important to remember that petrol and diesel prices in India (set by the government) have not increased in proportion to the increase in price of crude oil during the last 8 years. Since 1999, the price of crude oil has gone up by a factor of 6, but the price of petrol and diesel has gone up only by a factor of 3. The nationalized Indian oil companies are losing billions of $ every year since they can't increase the price of petrol and diesel to the same extent as the increase in price of crude oil in the international markets. So far their strategy has been to cover the deficit by selling bonds (sounds familiar?). This is obviously not a sustainable situation in a post peak world.
Eventually, either the price of petrol, diesel and kerosene will rise substantially or the Indian oil companies will go bankrupt. The booming Indian economy has provided some breathing room to the Indian government which now has foreign exchange reserves of around $200 billion. This translates into 3 years worth of oil imports at current price and consumption level.
Wait a minute. I have been reading this and it was said that with gas at $18 a gal that some would just pay it and keep on driving.
Well at $18 a gal that means everything else is at the same level.
Food would be and just about every other commodity and product. All are tied to the price of oil...transport you see.
So maybe $600 a month for gas but what about all the rest?
I can tell you that out here in rural America we would be totally shut down. Absolutely shut down.
People out here living on far lower levels of income would start to perish.
The above scenarios are just not reasonable.
At $300 a barrel Simmons can sit and yak about it but we would start the big dieoff at that price. He lives in an ivory tower. He doesn't live on the same income as huge numbers of people elsewhere do.
Lets get a grip here. Take a perspective of real life.
airdale
"Well at $18 a gal that means everything else is at the same level."
No, it doesn't. Your assumption is based on faulty economic premises that energy is the dominant price driver for everything and that all production methods for the same good require the same energy input. Neither is even remotely true.
What I heard Simmons say is that consumers are currently paying a price for finished goods equivalent to paying $300 a bbl (you can buy raw potatoes for 20 cents a pound in 10 pound bags or you pay $4 a pound for finished potato chips). What Simmons was very clear on is that a price of 10 cents a cup is much too low.
EDIT
Corrected for clarification now I've had my first cup of coffee.
Oh good GOD people. How short memories we seem to posses. But I suppose it was time for an 'OH SO SCARY' prediction to be released to satiate the growing appetites of peak oil doomers around the world!
This is now the THIRD, yes, the THIRD year in a row that he has stated that peak oil has passed, and we were headed for sky high prices.
Back in September 2005: http://site1.planetjh.com/klobnak/klobnak_2005_09_28_energy.html
OHHH so SCARY! $10-a-gallon gas in the winter of 2005!!!..
NOT
Back in March 2006: http://transcripts.cnn.com/TRANSCRIPTS/0603/17/acd.02.html
I remember hearing the doomers elated grunts from my house when this interview aired! BTW, they also discussed how we were in for $190 dollar oil back in 2006...
FLOP!
And of course, today, we HAVE to one up ourselves, right? $300+ OIL in 2007! DOOOOOOOOOOOOOOOOOMED!
Honestly people, how can you let yourselves get sucked in by this crap? The man is an investment banker that specializes in oil. They WANT the price to skyrocket so they can make money and get a good return. What a sad sad man to hype the issue up so much in a vain attempt to manipulate the market that he is heavily invested in! I'm sure we will be hearing from the Prophet soon as well...
OOPS! We already did!
Ridiculous.
I don't know why I'm wasting my time but here goes.
Can you take this any more out of context. How about including the sentence before that where Simmons is asked for his worst case scenario? He didn't say this is probable or even likely any time soon.
Simmons makes no such claim about the price of oil in that transcript.
Yeah, nothing scarier than language like "almost" "verge" and "could"
Now you are just making crap up. Simmons specifically said he has no idea when 300$ oil would happen. And you come up with 2007?!?
Well that adds a lot to the discussion. Thanks
Yeah, that's it. Simmons is manipulating oil prices.
But good trolling.
I don't normally degress into calling people names, but in this case I will point out the obvious:
Only a F'in moron could possibly not see the conflict of interest in his statements.
Once again, this is nothing new from Mr. Simmons. Thats a transcript from an interview he gave in March of 2006. And look at that, he thought oil would go up to $650 a barrel! The message is the same, the people are still gullible.
I know you are an intelligent person. So you must just be intentionally dishonest.
(excuse me as I crudely transcribe your unsourced jpg)
"If demand exceeds supply by 2-5mbd"
"We will have some shortage"
"oil demand globally could easily go to 86-88 million bpd during the winter and that could easily exceed supply by 2-5 million bpd"
"if that was to happen..."
"Oil prices could easily go up 5-10 times"
What he is saying is that world demand could go up to 86-88mbpd and which would exceed supply by 2-5mbpd. If that were to happen oil prices could rise 5-10 times.
But you are right, this is nothing new. Mr Simmons is always careful with his language. He never predicts high oil prices as much as he explains the conditions from which they could arise.
He didn't predict 300$ a barrel oil in the parent interview. He says "A lot of countries charge consumers effectively $300 and they still use it." That's including taxes presumably. Nor does he predict 650$ barrel oil in this snippet of an interview.
65 x 10 = 650
Oil was at $65 a barrel at the time of the interview...
Again you miss the point. Every year for the past 3 years, he has come out and announced the end of oil, the peak is here and here are the conditions that will lead to huge price increases for oil. His own hedge fund deals primarily in energy stocks: oil and natural gas.
ITS A COMPLETE CONFLICT OF INTERESTS!!!
Very good. Your grasp of basic math is admirable.
However it still doesn't change the fact he never predicted 650$ barrel oil.
You are still being dishonest.
No one, least of all Simmons, has announced the end of oil. End of cheap oil, sure.
And more importantly Simmons has never ever called the peak until today (yesterday?). That's why its a front page article, because its big news.
He's very correct about prices rising if demand exceeds supply by just a couple percent. see the 1973 oil shock for such an example
I'm not even going to get into the issue of Simmons single handedly manipulating oil prices. Its asine.
If you honestly believe that, then fine. I disagree. Lets leave it at that.
Hothgar,
Let me add this.
If you honestly do have a beef with what Simmons is saying (and not just trolling) write it up in a clear and rational way.
The man is not above reproach. He is not a saint.
But what you have done is
1. Take his quotes out of context
2. claim he's said things he didn't
3. Misquote him
4. Deliberately misinterpret what he says.
5. Then add "Doooooom" to the end.
Try being more intellectually honest. I know you are intelligent enough.
And no, I won't argue with your claim that Simmons is manipulating the oil market for his personal gains. Perhaps you can bait someone else into that argument, but I refuse.
I'm not 'baiting' anyone. Notice how no one else even tries to defend the man but yourself. At least with Deffeyes you could feign innocence. The man is engaged in deliberate market manipulation by trying to scare people about oil supplies. What does that accomplish? It drives up the price of oil, and makes him a ton of money.
I wasn't defending the man.
I don't know him. I've never met him. I don't really care about him.
You could rip him a new one for all I care.
However that said, what I objected to was your dishonest (and inflammatory) approach.
If he has been (as you claimed) proclaiming peak for 3 years than it should be pretty easy to find such a quote.
If he has been (as you claimed) predicting imminent sky rocketing oil prices than it should be pretty easy to find such a quote.
Instead what you have done is
1. Take his quotes out of context
2. Claim he's said things he didn't
3. Misquote him
4. Deliberately misinterpret what he says.
5. Then add "Doooooom" to the end.
Its dishonest and inflammatory. That's what I objected to.
Hothgor, this is not meant as an insult but rather as a cold fact. Nobody wants to waste time with you. It doesn't matter what other people say, you deliberately twist their words and try to figure out ways to misunderstand people. I would really like to have that good old */ignore* function.
You DO make reasonably good observations from time to time, but that's not really good enough to offset the usual trolling. That's my opinion anyway.
I'll throw you another bone. I don't know if we would have reached even the 100$ barrier, but if the 2 previous winters would have been anything like 'normal' winters, the price of oil would be noticeably higher. If the winters would have been colder than on average, the 100$ barrier would have cracked already, I *think*.
This winter shouldn't be of much importance anymore. The next real price test is during the summer. Plase note that if the summer is much cooler than usual the price won't be rising much. Unless some anomaly swings the bat.
(edited: added the name to whom this was directed to avoid possible misunderstandings ;) )
Hothgar-
Do you know Matt Simmons? Have you met him? Have you had any discussion with him on any of these subjects? Since the answer is surely "no", why not avoid posting on things that you are ignorant about? And, yes, I can answer all of those questions affirmatively. Maybe I could tell you about the meeting where I listened to a conversation between Mr. Simmons and a pertoleum geologist who worked 8 years for Aramco. But what would be the point? You are firmly in the category of people for which there is no set of facts that would convince you of an impending peak.
I'd like to hear of this conversation if the 8 years were fairly recent.
Hi all
FWIW;
I paid >300 $/bbl for Gasoline last year and yesterday 252$/bbl at the pump -ignoring the difference between gasoline and oil.
The 252$/bbl is considered a low price here.
Source:
http://www.oil-forum.dk/Priser/Prisudvikling/browser.aspx?path=%2fhome%2fpriser%2fprisudvikling%2fdanmark&layout={D094BB8B-FB79-4673-9130-4F0E62EA110E}
column 4 consumer price in (Kr) DKK/liter; 1US= 5.66 DKK and 1bbl = 159liter
kind regards/And1
I just went back to check and Simmons states the following:
Oil price unbelievably inexpensive
Oil prices way higher. Don't know what that means. ( He does not assert or predict a price)
Countries have finished products charging consumers effectively 300 a bbl and they still use it. ( he is describing And1's experience as above)
EDIT
Added reference to And1 comment for clarification
I agree that Simmons hasn't ever said (at least to my knowledge) that we have peaked before.
But the quote from back around Katrina time did make me recollect the now largely silent Mr Ruppert's declaration (at the Petrocollapse conference) that the US economy would collapse within 3 weeks - a classic example of over-exuberant doomerism if ever there was one.
I think you are missing the point. Catastrophic price rises did not occur because demand was reduced. Most likely Peak has produced its first wave of demand destruction.
Well that's not much of a bet, since if you're wrong, a thousand USD isn't probably going to be worth very much.
It's a good bet for me. Very safe, IMO. And for all the people who told me how risky it was, and who thought oil would easily hit $100 this year, only one person stepped forward to make the bet. I think when it comes time to lay money on the table, people start to second-guess what they have been saying on this board and start looking at it in more realistic terms. I think my ace in the hole is what you outlined in the last paragraph.
I previously offered to bet freddy a steak dinner, or $100, that 07 world production would be less than 06, to be determined by eia data no later than 3/30/08. As I noted earlier, freddy's punters all show a wall of oil hitting us this year (full disclosure - this is also what they predicted for 06). How about it? TOD editors can hold our post-dated checks to each other for the amount until the bet is decided, then forward both to the winner.
Why don't you guys just bet with your honor as collateral? If the loser defaults, he looks bad.
Are you guys all in such straights that $100 a year+ from now must be guaranteed by a third party? Sheeeesh.
I'm fine with that, but Robert is much better known, he might not be so sure of me. Premature to say "you guys", so far there's just me.
You might want to check out www.intrade.com.
They are basically offering a payoff of 5:1 if oil is on or over $80 on Dec 31, 2007. Just takes a credit card to get in on the action in minutes. Whoever bet RR seems like a complete lunatic.
I realize, however, your proposed bet is re production.
They are basically offering a payoff of 5:1 if oil is on or over $80 on Dec 31, 2007. Just takes a credit card to get in on the action in minutes. Whoever bet RR seems like a complete lunatic.
The example I have given to several others when describing the bet is this: If you wanted to bet me at the beginning of the football season that a certain team was going to win the Superbowl, and you gave me even odds, I am going to take that bet year after year after year. I don't care who you are betting on; I will make the bet. That's the way I feel about this bet. I got even money for something I see as about 20/1 odd against.
The only I way can make sense of it is if somebody *really* believes oil has peaked and they *really* want you to eat crow in public. Both things need to be true.
Is it public who your fellow punter is?
In any event, it's a great way for you to cash in on being well-known in these circles. It seems like a decent way to turn celebrity-envy into a year-end bonus.
Is it public who your fellow punter is?
No, not public. If he wants to say, I will leave that up to him. Super G is holding the money for us.
Thanks, seems worth a punt tho I don't bet much. If production is flat and demand is up 1.8% per eia and opec, price should rise - but, not necessarily to a new record, and even if it does, could even fall back a bit end year with another warm late fall. Price is much more difficult to call than production, and even that has everybody guessing. Of course, if production goes to 90Mb/d as forecast by freddy's punters, my bet won't do well.
If only production were dictated merely by ability to produce. I am not saying oil production won't be down this year. It might be. Again, I look at the climbing crude inventories and don't see a need for more oil right now.
Many times in the past, year on year production has declined, and it has always been due to reasons other than geology. That's why I took the bet I did. If oil production has peaked, the price is going to climb to over $100 this year. But I wouldn't have made the bet had I thought there was any chance that oil production will peak this year (or has already peaked).
Robert,
I'll call your $1000 bet and raise you. I bought 3 oil futures contracts for $15,000. If you really think oil has not peaked then you can buy the other side (short) of my contracts.
:laughs:
Moo
I'll raise you one box of saved toe nail clippings complete to jam and exotic fungus cultures. I'm positive they can convert cellulose to ethanol.
Should be worth millions.
Heck I'll even pay shipping when I win.
Flamebait. I won't bet because I don't have the peanut harvest numbers in front of me.
I''ve got $40K that says Simmons is right.
I think we need to consider the important remarks Simmons' made about the aging rig fleet. 25 year-old rigs are being called into service that, a decade ago, would have been retired. I suppose they can be refurbished, but combined with the shortage of new rigs, you are reaching a physical limit on what can be used to extract more oil. This is especially noteworthy in a world that substantially depends on offshore deepwater production to keep us "afloat", so to speak, for getting new oil out of the ground. Meanwhile, production declines never sleep as new fields are delayed for this or other reasons. This would seem to be the heart of the matter for Matt.
Just my 2 cents -- Dave
new account had some interesting comments to make on today's Drumbeat. The hardware was one thing but in his view, the trained personnel needed to man these rigs would be hard to come up with, too. Maybe he'll commment, here.
Knowing little about this peak oil stuff, and with HO, who has written on this subject many times, apparently out of the loop at the moment, I will wait with bated breath for new account to fill me in on the details about trained personnel shortages in the upstream oil business...
...and obviously, I've not figured out who new account is.
I found New Account's comments to be quite informative also. He does seem to have considerable first hand experience in the oil industry, specifically including what goes into the production of rigs, and what goes into effectively manning them. In fact, I would rate him to be another potential "contributor" - for what my own evaluation of these things is worth.
Actually, New Account's remarks are quite good. Sometimes I think we were all "born yesterday" on The Oil Drum — rigs and labor issues have been discussed many times before here. This is the nature of the weblog medium we operate in.
So, pardon me, I was feeling a little feisty and that's why.
Here's a link to the specific posting by New Account in question:
http://www.theoildrum.com/node/2238#comment-155236
Dave:
As you know this subject was my concern in my presentation at the ASPO-USA, Denver conference. Things have not gotten better in my opinion although we have many more "warm bodies" at present. Looking at the current personnel list of 35 hands only 3 have more than 5 years experience. Fully 1/3 of these people are trainees with less than 3 months experience. A rig crew member with more than a months experience is often promoted to "driller".
As far as I know all of the old rigs that can drill are drilling. The new rigs being added in this area are flex rigs and I understand those are being added at one per month.
As I discussed in my presentation non magnetic collars are a critical item now. Actually much more so than a year ago as we now have an additional year of washing on the ID of the collars that we had. Also tool strings are planted in the ground occasionally further adding to the shortfall of equipment.
Development of coiled tubing drilling is being made as an alternative to "legacy" rigs however there are some limitations in which they can fill the gap.
I will say this about Matt Simmons:
The first time I heard of him had nothing to do with Peak Oil Theory. It was in Spring of 1998, after the Asian Economic Flu had sent oil prices dropping to $8.00 per barrel leaving guys like me out on the street looking for work out of the oil patch. Most of the mainstream media was spouting off about how cheap oil was here forever- nothing to worry about.
Matt Simmons was the lone voice that said, "Hold on fellas, you all are in for a ride!" By God, he was right. It was almost the final dismantling of the american drilling industry after 12 years of near depression, yet the turn around in prices caught many companies with their pants down. The last 5 years has been a jaw dropping experience for many who bet that this thing wouldn't continue. Katrina/Rita put the fear of god into some. Yes, it is possible to have a real energy emergency. In my opinion that is the point that Matt Simmons has being trying to make and those that ignore it do so at their own risk.
Oil and Gas Drilling is not an easy game- it is dangerous and you can get killed on a drilling rig very easily. You throw warm bodies out here and hope that some knowledge sinks in their thick skulls without getting hurt. The more new people you have out here the odds of getting hurt increase. The more you work the experienced people you risk serious burnout which is also happening to people.
That's my 2 cents worth for today.
Thank you, Charlie.
best -- Dave
Charlie - what kind of rigs are these? I was talking of deepwater semis. If you are talking the same environment then the above crewing standard is insane.
Try this again... of course these are not deepwater rigs but it is still insane. These are Rocky Mountain rigs and hands/crews cycle out of here. You would have to have top crews deepwater and probably have to pay them appropriately. I'm sorry I gave up offshore 20 years ago so I wouldnt know the skill level there now. I have a lot of friends that still work deepwater GOM that tell me stories. But... if the powers that be keep pushing for rigs there, it will be a similar situation.
I believe the US rig count in 1998 bottomed around 400, now that is the count for the Rockies alone.
Fortunately now I am on a Precision Rig hired at top dollar with a very experienced crew. I am in the Directional Drilling end of things and we have had problems with absorbing trainees from the "real world". Most are degreed engineers, but the first thing you have to get through to them is to get their head out of their a** and not stand in the wrong place. I tried to explain "Righty Tighty - Lefty Loosy" to one and he looked at me like I was speaking Latin. He never caught on and finally got ran off.
New Account - I've been on rigs where both crews walked away. The toolpusher is left circulating off bottom until they could muster a crew to trip out. That has been a while back, but it is pretty sad when it happens.
You can have offshore - been there, done that.
In some way, that is actually a good thing.
It means that the peak of production will occur sooner, but the rate of decline will be lower.
This gives the potential to have less economic disruption and potentially more wise remediation policies---e.g. electrification of transporation with wind, geothermal and nuclear expansion, instead of crash, climate destroying coal-to-liquids.
On the other hand there's the chance that if the decline is low then the Denial Industry will continue to successfully deny that there's a problem and we continue with "business as usual" without serious logistical, political and technological realignment.
This is especially noteworthy in a world that substantially depends on offshore deepwater production to keep us "afloat", so to speak, for getting new oil out of the ground.
Sometimes it boggles my mind to think about the lengths we will go to in order to obtain oil. I found out today that I have to attend offshore survival school as part of my new job. I will be going out to the platforms in the North Sea, and you have to learn how to quickly put on a survival suit and escape a helicopter under water. So, that's apparently what you do in survival school: They put you in a helicopter cockpit, plunge you into a pool of water, and let you practice escaping. Sounds like fun.
If we will build a small city out in the ocean in order to get oil, it makes you wonder what we wouldn't be willing to do.
Yeah, it definitely "makes you wonder what we wouldn't be willing to do" — we probably haven't seen anything yet. All this so we can continue to use all of our forms of motor transportation to maintain our personal mobility.
Makes me wonder about Homo sapiens and innate drives but I don't think people, even on TOD, are ready to have that discussion yet ... nevermind.
Robert,
I would highly recommend the book Deep Survival: Who Lives, Who Dies, and Why
by Laurence Gonzales
I think you would really enjoy it.
http://www.amazon.com/Deep-Survival-Lives-Dies-Why/dp/0393052761
John
I first got into the whole Peak Oil craze in August 2005 when I saw Simmons book on the bestseller list in Canada.
here is my simple mantra and i think I'll repeat it in each thread here from now on:
"Oil drives inflation and inflation drives gold"
Too bad it is illegal for americans to own gold. I find that so absurd.
Surely you jest. Americans cannot own gold?
Where is that written down?
Tell me what law prohibits it. Our dollars are not based on the gold or silver standard,tis true but not own gold? I think I have a few pieces laying around...or maybe that was fools gold.
But I believe I can buy it anytime I wish. I have some gold jewelry that says your absolutely WRONG.
What have you been smoking of late? Bet its not better than Caintuk BlueGrass. Have a swig of this and forget your problems. Ethanol=moonshine..."It's a GOOODDD thing."
In 1933 we went off the gold standard, and at the same time made it illegal for american to own gold bullion, excepting gold coins etc collected by numismatics, jewelry, and what was needed by businesses, eg dentists and electronics. This law was repealed some time ago, maybe c1980? and americans are now again allowed to hold as much gold as they want.
RR< Back in the days when I was going through flight training, that particular training was accomplish in a lovely device called the "dilbert dunker" Down a steep ramp into the water and flipped upside down. It wasn't really difficult unles you tended to panic. A couple of guys washed out there. Have fun
"Small city" reminds me of this.
"Construction cranes loom above the site of the new U.S. Embassy being built in Baghdad. The embassy will sit on 104 acres, six times larger than the United Nations compound in New York and two-thirds the acreage of Washington’s National Mall."
Oh, plus there's that bit about killing hundreds of thousands of people.
Robert - It is clear you have not yet done the training. I suspect you will be attending RGIT. I don't know what version of HUET training they currently use or the rollover mechanism and cabin surround but I look forward to hearing your description of your experience.
My favourite was the Senior Push who drawled "Before I did the training I didn't think I would survive a helo ditching. Now that I've done the training, I know I won't survive."
I could give you the historical/political background as to why you are doing the training but that will not inspire much confidence.
Cheers!
Part of naval aviators acceptance testing is being dunked in a pool while strapped in a device simulating the cockpit of a aircraft.
You had to unstrap all the harnesses and swim to the surface without panicking.
Before you could be rated acceptable for flight duty you had to take the Escape and Evasion field maneuver. Had to jump in the ocean with full gear, deploy the liferaft(inflate it) assemble and use all the survival gear, in heavy swells I might add when lots of the men in the raft filled it with puke, then jump back in the ocean and be lifted out by a chopper on a sling ,all while a navy cutter with a bosun mate armed with a M1 circled the area on the lookout for sharks.
Finally dropped in the jungle with one canteen of water and one K ration and survive for two days while hiking to a given objective site miles away..Immediately following that you were captured by the Army Agressor Forces, placed in detention, chaingang marched up a big mountain, stand at attention in the broiling heat til many started passing out, be subjected to torture and harassement including some beatings , left in an underground bunker for hours and hours.
Four days long as I recall. Maybe three. Many did not make it and were washed out, sent to the fleet and made apedecks on various carriers.
The rest of us then had three years of constant flight duty over waters that if you ditched you only survived for 15 minutes(frigid waters in the Pacific) and thats with full survival gear and a MaeWest on.
I logged 3,000 hours and my first aircraft self destructed on the flight line with an explosion and fire when the avgas blew out the wing root. We lost several more. Some earlier ditchings I was told the sharks feasted on.
At that time in my young life I found it all rather exhilarating.
airdale
OT..sorry...but a good seastory nonetheless.
Airdale: It is a great story. Here:
I think you are describing what I know as a "Dilbert Dunker," a simulated cockpit sitting atop a 40 foot ramp. Trainee gets strapped into cockpit, the device accelerates down the inclined ramp to the bottom where it does an immediate pitchover to leave the trainee immersed upside down in shock due sudden arrest of forward motion. After you recover from this simulated death experience (loved the water that gets forcibly injected up your nose), you get to punch out of your harness before you drown. This sound familiar? Since we did this in winter they had to break and remove the ice before we had our chance to
dieflytry it.Robert gets to experience the "improved" version. :-)
Cheers!
Yes it was called the Dilbert Dunker but in my case it was an indoor pool made for that purpose. I was on my way to passing all requirements to be forwarded to the Naval Aviation Academy in Pensacola.
BTW I decided at the officer review board that I was not going to devote the rest of my life to the USN(6 yrs required) so I declined their offer at that time and became a crewdog instead with only a set of air crewman wings. I then went to a years schooling in electronics. Never regretted it.If I had said yes instead then I might be dead now. Carrier pilots are not always that lucky. Besides look what happened to Tailhook parties.
airdale
Ocean Ranger
Yeah. Sadly.
More than that too.
I didn't know about Ocean Ranger, but everyone in the industry is pretty familiar with Piper Alpha.
http://archives.cbc.ca/IDD-1-70-349/disasters_tragedies/ocean_ranger/
Hi Dave,
Thanks and I've been thinking the same thing.
1) I'm starting a list of questions I'd like to ask Matt (some are follow-up to other questions), and I wonder if there's any interest here in compiling a list?
2) For example, in a recent talk, he mentioned immediate transparency of data (one of his top suggestions) and in a reply to a question said something along the lines of this being completely feasible, all it would require is Bush setting it up. (Penalizing importers who do not comply.) So, I'd like to ask, "Ok, so how do you see anyone influencing Bush to do this?" (etc.)
Then, yes, the rig issue struck me in a different way than it had previously. Matt also spoke about the "jobs created" with re-furbishing rigs. Okay, so...where does the money come for this? How come it's not already being done? In other words...I think it would be useful to be able to take any one talk or interview or even just our questions and have a little bit more in-depth discussion. What do you think?
Hello Dave Cohen,
I have never worked in the oil industry, so a keypost by you or HO on differences between old and new rigs would be very interesting. I assume the safety eng. would be the biggest difference, but I actually have no idea. Cheers!
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Exactly right - peak has a lot of meanings, and often, the focus is simply on one element.
Simmons, an investment banker who has no conflict of interest as he is clearly someone who earns money in the energy field, has been pointing out that creaky infrastructure is likely to have a massive impact on oil production.
But since that is such an old fashioned (almost German, actually) way of looking at the New Economy of the American Dream, nobody much seems to be paying attention to him, even as pipelines fail, refineries go down on a regular basis, and the rig count declines, while the average age increases.
He isn't conflicted - he would love to make money by having people pay attention to the real world. Sadly, he is living in America, which means he seems pretty foolish, talking about geology or engineering (or even cause and effect), especially as he not a qualified oil executive, like Bush or Cheney, to name two.
I'm not sure why, but I put more credence in what Simmons has to say than anyone on the subject.
Partly it's because people of his social background and consequent ideological and political orientation tend to be reflexively inclined to say the exact opposite of what Simmons is saying.
Well, his company has a lot to gain with increased oil investment.
I'm not saying that's his motivation.
But the truth is that he gains if people become anxious over peak oil even if peak oil is a complete fantasy.
But, I repeat, I'm not saying that's his motivation.
Another way of putting is that, it would make sense for a person in his position to work the peak oil issue for what it's worth. He is not a disinterested party.
But I've no idea what's going on in his head (or Dan Yergin's either). They are both dreadfully partisan, in my view. Otherwise they would get together and carefully painstakingly work on where they agree and where they disagree instead of the long range artillery duels in the media.
The oil industry has been dogged by price collapses that leave investors high and dry. Especially, when the projects are tricky and need a long view.
Simmons could be read as trying to reassure potential investors that even risky projects can now proceed with complete confidence that prices will remain firm.
His company would, of course, be happy to underwrite such projects.
Considering that we have already started to see the increase in price volatility that occurs at peak as supply and demand start varying. And considering that the first action soon after peak oil will be to nationalize most of the oil industry I can't see that its in Simmons financial interest to promote peak oil. The days of open oil markets and private oil companies will end quickly post peak.
I for one will vote for any candidate willing to nationalize all oil companies and resources once its obvious we peaked and I'm sure most Americans will share my feelings.
Best case if they stay semi-private is horrendous taxes.
Nothing personal just that at that point oil and how its used is worth far more than money.
But assume for a moment that CERA and the EIA are correct. ie. Peak is distant and not a huge problem in any event.
If Simmons believes this, he still has ample incentive to talk as he does. i.e. He would have no fear of energy nationalization because he knows prices will never truly blast upward.
He stands to profit by crying wolf, knowing that there is no wolf, because it might give investors more confidence, thus improving his underwriting business.
Simmons is a business man and a banker no less. My experience of CEOs and other senior execs is that they are very much capable of systematic untruth no matter how honest and genuine they may appear.
But I am absolutely not making that accusation in Simmons's case. I simply don't know.
I just wish he would make more of an effort to bring the two warring sides together to hash out the issues.
Deffeyes in the "Nature" piece a few weeks ago was quoted as saying, "There is just no middle ground." That's a sign of a real problem with the people involved in the debate. They should be busy trying to piece together the source of their differences and coming up with ways that further data might resolve them; not sniping at one another from their respective camps like politicians.
The general public does not have the wherewithall to evaluate their respective claims. This is not politics, it is not a matter of values. It's a technical matter of science and fact, and the experts should be getting together to resolve it.
I think you make an error here. Even a cursory read of the topics covered on TOD will show that it is more than a "technical matter of science and fact . . ." It is about the underpinnings of our civilization, the story of the vast range of different structures and processes that we have erected on a foundation of cheap oil. It provides the light that greets you at daybreak, the transport that brought your morning coffee, that created the configuration of your built environment, that dictated how your employer structured the enterprise. To say that it is everything that we are is hyperbolic yet in some ways it is not far from the truth.
Oil is also geostrategic. Oil revenue creates the basis for some very odd political entities and the range of values involved is beyond my comprehension (I'm working on it). Since oil is geostrategic, some players have reason to keep their cards close to their chest. Where is it not geostrategic it is proprietary and here too there is reason to not disclose all that may be known.
It is politics and it is a matter ofvalues and it is precisely because of these facts that no convention of experts will ever be able to render other than an arbitrary and unacceptable set of decisions. The problem that we face is that it is precisely because oil exhibits all of these properties that its future scarcity has the potential to fully erode all of those structures that have been erected with it as a foundation. We live in interesting times.
Quote of the day.
The human ramifications of the "technical matter of science and fact" are, of course, political. No argument there. Just like global warming. But those matters themselves are not political. Facts aren't political.
That the debate will always be tinged with politics.... that's obvious too. Just like global warming.
That the key spokesmen in the debate do not engage each other. That's a crying shame and it can be fixed.
I'm not suggesting a "convention of experts" at this point, I'm suggesting ongoing written public exchange in decent publications by experts on technical matters. Just like global warming.
In those pubs, polemics and ad hominem irrelevance would be barely noticeable.
Peak oil is the future. And for many societies with roots before the oil age, it is also the past.
This is what makes the U.S./Canada and Australia/New Zealand special cases - essentially, their current cultures/societies come from the age of oil.
The variables in this discussion are seductively few, geological decline of oil production is inevitable, while the time and measure of it are open to seemingly endless discussion, however the various perspectives involve too many cultures and societies for any single person to be able to understand merely the differences between them.
'Fracturing' is the way I see the future. Unfortunately, many of the problems requiring solutions are of a global scale.
This will move the date of Peak Oil forward. Any attempt at mitigation will be a such a SNAFU that no species will survive it.
I presume you live in the country that enaged in an invasion of Iraq for reasons that are clear to no one, that needs to leave and stay at the same time except that it cannot afford the fiscal or geostrategic consequences of either course of action while at that same time hinting at an enlargement of the conflict and promoting greater production of heavily subsidized moonshine as a means to sustain the non-negotiable US lifestyle.
And you want to put these same folks in charge of oil production?
How about because Simmons has a damn good track record. He and Joseph Riva were the only people associated with the infamous natural gas prognostication put out by the EIA in Jan. 2000 that were on target. Basically they asked what the rest of the people were smoking. For those of you who were not involved in this exercise in 1999 the EIA Natural Gas clusterfuck (250 of the finest minds in the industry) ended with a statement that natural gas production would grow to 30 trillion cubic feet by 2015 and prices would remain below $3.00 a therm. Riva and Simmons were the only dissenters, and the only ones that were right. One month after the report was issued Gas prices hit $10, $40 on the spot market.
You need to go to his website and review some of his writings from the 1990's. His early concern was lack of infrastructure, part of what is biting us now. He has a virtual army of people doing research for the oil and gas business his company is involved with and he has better data at his disposal than any of us do.
His statement that we have peaked is the first time he has stated this. I take it seriously.
Still my favorite Matt Interview(Below), One of the first in the Peak Oil/Nat Gas Cliff vintage I think.
Read the article again and look at some of the statements he made a couple of days after the East Coast Blackout in 2003 for www.FromTheWilderness.com
Behind the Blackout
When speaking of the Blackout Mike Ruppert asked him;
http://www.fromthewilderness.com/free/ww3/082103_blackout.html
Agree that Simmons has a pretty good track record, as these things go. The North American natural gas peak blindsided the U.S. energy industry. Nobody saw that coming. Except Simmons. Ditto the North Sea peak.
And probably to the fact he was invited to Cheney's(who I have very negative respect) closed door US energy policy meeting. Alot went on in there that we aren't supposed to learn.
I cannot get the video to play. The window comes up but nothing plays. I tried the other videos on the page as well and could not get those to play either. Any suggestions? Never had this problem with Bloomberg before.
skent, my browser initially blocked a pop-up. When I enabled it, I was asked permission to install a plug-in. Then the video would play. Do you have your pop-ups blocked?
I do use the IE pop up blocker ut I never got a message saying it was blocking. I just disabled it and still cannot get the video to play. The window does pop up but where the video is supposed to play I just get a grey area.
Sounds like you're missing a codec or something.
Have you tried updating Windows Media Player?
Yep. I have the latest version. On a side note for some reason videos do not buffer in WMP anymore. A window comes up and downloads the file into a temporary folder and then WMP starts and plays the video. I always used to have it buffer in WMP.
Got it to work. I just reinstalled WMP from scratch. Thanks.
If you have NoScript or some other script-blocking or popup blocking extension installed, allow Bloomberg. The video appears in a popup window, and script-blocking and popup blockers can get in the way.
He mentions Mexico the UK and Norway as going to decline by 800K to 1Mbpd. The UK in 2007 has seen the start up of the buzzard(180Kbpd) field and a number of other older projects( eg. Brenda/nicol 30Kbpd). This should stop the UKs decline in 2007 indeed the production may rise slightly over 2006. The run of three years of 10% net decline has been broken. That the field named Buzzard field is picking over the bones of the North Sea is frightening but I would question why he sites the UK as a decliner in 2007.
I thought the interviewer was a classic.
An interesting note..."RockDoc" over at PeakOil.com seems to have converted. He was a peak oil skeptic. Or at least, he didn't believe peak oil was now. I believe he's a petroleum geologist, and, like RR, thought there was enough future production to offset the declining giants, at least for a few more years.
Judging from what he posted today, he no longer believes that. Like Simmons, he thinks peak oil is now. There's a lot of oil still out there, but he no longer believes it can be extracted fast enough to delay the peak. He still thinks that if all future projects come onstream as scheduled, global production will rise...but we all know how likely that is.
As I said over on the Cantarell thread, world crude production (assuming that it is now still below the 5/05 EIA peak, which appears to be a safe assumption), has been below the 5/05 peak for portions of three years--the second half of 2005; all of 2006 and into 2007.
I think what really got people's attention is that both Saudi Arabia and Mexico are eliminating and/or reducing crude oil deliveries to refineries. Notwithstanding the fact that Pemex reported a rebound in January, the more important fact is that they cancelled 100% of crude oil deliveries for 2007 to the Gulf Coast refinery that they jointly own.
Jeffery,
A question on the Hubbert "curve". I will try and frame my question so that it is understandable.
(assumption #1 needed for question) Hubberts curve is an aproximation based on unchanging drilling technology.
Q. Would increased technology on extraction make the leading edge to peak and the tailing edge just past peak flatter with a sharper drop say in the 7/8 to mid point on the post peak side of the curve.
In other words does technology make a flatter peak and a steeper slope on the backside down to a point that it slowly tapers out for a long time. (Ignoring all the important but relatively smaller details that seem to clog discussions)
Does this make any sense? Would this make post peak declines sharper because we can hold production higher longer? Is this Cantarell?
D
In regard to technology overall, note that the Lower 48 and the North Sea both peaked at the 50% of Qt mark, 29 years apart. (Mexico peaked at 50%, 35 years after the Lower 48 peaked.)
Because of enhanced recovery and horizontal drilling, it's very likely that the Ghawar and Cantarell declines are going to be very rapid
My present concern is that the world is not drilling nearly fast enough to keep the post-peak decline rate down to the 2% range that we saw in the Lower 48.
No, they did not. They did not peak at 50% Qt, they peaked during the 50-60% range. Thats a huge distinction that needs to be made. You are trying to spin the issue to say that the moment they produced half of their supposed oil, they instantly peaked. It's simply not true and you know it.
And yes, a few % does matter, especially when we're talking about billions of barrels of oil.
To be precise:
Khebab's Lower 48 plot showed the Lower 48 to be at 50.2% of Qt on 1/1/70 and at 51.9% of Qt on 12/31/70. The Lower 48 peaked in 1970.
My North Sea plot showed the North Sea to be at 48.4% of Qt on 1/1/99 and at 52% of Qt on 12/31/99. The North Sea peaked in 1999.
In both cases, crude + condensate, EIA data.
Following the above patterns, both Mexico and the world (crude + condensate) are showing lower production right at the 50% of Qt mark.
what? rockdock123 changed his mind? interesting, do you have a link?
Try here.
...sounds agnostic, peak might be here, but the plateau will last a long time. No thought that sa might be going down.
I'm surprised no-one has commented yet on the $300 figure. Personally I believe it was used out of context by the Bloomberg interviewer, but its prominence in Prof. Goose's headline suggests otherwise. That's a pity, because the thrust of Simmons' argument regarding peak is highly credible.
$300 a barrel isn't.
$300 a barrel isn't.
I thought the same thing. I know that he likes to be provocative, but I think it does make the message less believable to the average Joe. $300 a barrel is really putting his credibility on the line, and provides a great big target for his critics. If Saudi production heads back up this summer, Simmons will be introduced as "Matt Simmons, who previously predicted $300/bbl oil...."
hence why I used "perhaps"... :) I understand your point though.
I even inserted a question mark!
Provocative? Perhaps. :) But that oil is way too cheap (at 10 cents a cup) is his thesis throughout this piece ("there's nothing in China selling for less than a dollar...").
there. I've caveat-ed it at least a bit more...
he gets back to, what is it, ten cents a cup, as well, one of his favorite quotes
what's so weird about $300 a barrel?
why is it not credible? is it just the getting used to?
the $20 a gallon? if he's right about the peak, that looks civilized.
I'm not saying it's impossible, just that it's not credible.
I have a problem imagining $300/bbl oil (say within the next decade) on a number of levels, one of which would be the demand changes such a price would suggest. I see a lot of discussion on TOD regarding the demand elasticity of oil, but I don't see much mention of what a crude oil price in the hundreds of dollars would imply in a world of trade, capital and currency flows.
Consider a prolonged rise in price to such a level for a moment. At current consumption rates, $300/bbl oil would send the US import bill for crude up to something like $1.15 trillion. On top of that you need to add refined petroleum products - say another $250 billion. Clearly the US could not sustain a trade and current account deficit of such magnitude, so there would have to be a dramatic fall in oil consumption to mitigate this, yet one which does not suppress economic activity sufficiently to lessen the pressure on oil prices.
[Of course, the dollar could tank (and probably would), but I'm assuming we're talking of an oil price at today's exchange rates, otherwise the discussion becomes somewhat meaningless]
As others have pointed out, there is a big difference between a spot price for crude of $300 and an effective price of $300 for the consumer due to the addition of taxation, duties, etc.
I think it's incumbent on those who believe we could see oil at $300/bbl in the near or medium term to describe a scenario where such a price comes about, other than through a very temporary spike. They need to explain how all the economic, financial and regulatory forces that would come into play would be circumnavigated.
Going from $60 oil to $300 oil isn't like going from $12 to $60. If average global temperature rises by 6 degsF then life becomes uncomfortable, but we adjust. If it rises from 6 to 30 degs then we fry.
And who was it who said "a sustained price of $300/bbl"? If it spiked to $300/bbl, that would be a price of $300/bbl, wouldn't it? It isn't too hard to come up with reasonable scenarios with a spike to $300/bbl. It pretty obviously couldn't be sustained, but Simmons didn't say that.
kjmc,
If it makes you feel better I'll remove the "other than through a very temporary spike" from my statement. So we have:
I think it's incumbent on those who believe we could see oil at $300/bbl in the near or medium term to describe a scenario where such a price comes about.
Since you say "it isn't too hard to come up with reasonable scenarios with a spike to $300/bbl" then maybe you could briefly list a few. Then if something close to any of them comes about we'll be able to match the actual price response to your expectation (I'm not being facetious - I'm genuinely willing to be educated on this).
And as regards Simmons, I was under the impression I was defending him. My comment was in reply to HeIsSoFly who asked me "what's so weird about $300 a barrel?...is it just the getting used to?"
I don't see how we can "get used to" a real oil price of $300/bbl in the next few years.
FTX
Can you send me an email? I have a question for you (off-line).
I just watched the video to see about the $300 part. Did Simmons mean this year? Turns out to be a classic example of a quote out of context. The interviewer threw that figure at him, and he said, yes, it will get there, but he wasn't going to guess when.
Only a blatant cornucopian can doubt that oil will reach $300 eventually. When is quite another question.
Matt's point was that in some areas, like Norway--which is, or was, paying about $8 per gallon for gasoline--petroleum products are priced at about $300 per barrel plus, and people are still driving cars. The car ownership per capita in Norway is half of what it is in the US, but what is amazing is that it is that high.
Note that Matt's bet is that in 2010, oil prices, in constant 2005 dollars, will be at or above $200 per barrel.
Re: Matt's point was that in some areas, like Norway--which is, or was, paying about $8 per gallon for gasoline--petroleum products are priced at about $300 per barrel plus, and people are still driving cars
Yep, what do you all think of that? Kind of gives you pause, right? Should make you think about our predicament, I hope...
Agreed. The context was quite clear that he meant that in some countries, with taxes etc, gasoline "feels like" $300 a barrel. The interviewer took that out of context when she started commenting as if he meant that oil would hit $300. Matt should have corrected her.
We're not paying $8, it's more like $6-$6.50. The big difference is that we drive much more fuel efficient cars, often getting 40-50mpg. 80% of new cars sold in January had diesel engines(!). So, three times the cost for fuel, twice the efficiency and less driving. Our total fuel cost for this year will probably be around $1700, my family has one car and we drive ~12kmiles/year.
Yes, that's why the US, Australia, and Canada may be toast. The US average fleet fuel economy is less than 20mpg (once you discount the bogus posted fuel economy numbers and look at the entire fleet, not just the most recent model year), the average household has just under 2 motor vehicles, and the average motor vehicle is driven for ~12kmiles/year. Some stats here.
It isn't as though the average US household is swimming in liquidity either. They can't just go out tomorrow and scrap their current commute, commute mode, or vehicle choice.
The world's biggest superpower is trapped in an addiction to the most dense, cheap, and convenient fuel in human history. What will we do when it isn't cheap anymore?
"$300 a barrel isn't (credible)."
Won't it be funny when oil hits and surpasses $300 a barrel and you, R2 and others find yourselves saying, "Incredible!."
I wonder what a cob of corn will cost on the day Oil plows through the various mental dollar barriers of the current population of "popular" delusionists.
It would be even funnier if they had said "Inconceivable!" instead of "Incredible!"
"Oil prices didn't fall?!? Inconceivable!"
"Inconceivable!"
Just like gold at $35 an ounce in 1970 going to ~$850 ten years later was inconceivable/incredible.
Just as the Fall of Rome was at one time inconceivable.
Our little Sap-ant farm is going to go through some renovations that are currently inconceivable.
Yep, he never says $300 / barrel oil.
He says "A lot of countries charge consumers effectively $300 and they still use it." That's including taxes presumably.
She asks "Could that happen here?"
He says "Sure it could." as in.... sure market price plus taxes could reach that level.
She says: "You've outlined $300 a barrel oil"
But he never talks about $300/barrel oil as the market price, only the effective price for consumers.
... but of course price depends on demand elasticity, and price induces demand reduction.... and demand reduction induces recession...
So it is very difficult to predict how price will play out on the downside of the curve, as most of you understand.
If a mere $200 is enough to whittle away at demand enough to induce general recession then the supply demand balance could find equilibrium at that level.
Demand elasticity... that's the great mystery. Well not that great a mystery, but a mystery when you get into price regions that we haven't yet reached.
The New York Times profiled several drivers last year when gasoline prices hit $3. The only people who had curtailed their driving were the ones that were literally incapable of buying gasoline, e.g., a college student who couldn't afford to buy the gas to go see his girlfriend on weekends.
Showing that demand is relatively inelastic at that price level.
Does anyone know whether demand elasticity functions are straight lines or curved, or how steep they are as we head into the 6, 12 and 24 dollar/gallon range?
That's all I'm saying.... There's never been a product that price increases didn't mitigate the demand for.... only question is the slope and shape of that curve as price goes up to levels we've yet to test it at. Everyone's got (a series of) gas prices where there are better ways to spend their money to maximize their overall utility functions.
Elasticity of demand does tend to be non-linear. It also varies substantially depending on the time horizon (elasticity is greater over a longer time period.) I don't think anyone could make a reasonable prediction for elasticity of demand at extreme gasoline prices.
I have seen estimates for the short-run price elasticity of demand for gasoline of between 0.1 and 0.3, meaning a 10% rise in prices results in a reduction of between 1% and 3%.
I have also seen estimates that total energy use might actually be elastic (elasticity > 1) over a multi-decade period. Not sure how credible that estimate is--no time to verify it myself. If anyone is interested in trying to verify that claim there is probably plenty of free data out there--you'd have to control for population and GDP growth in order to get a reasonable estimate.
"Demand elasticity... that's the great mystery"
Another great mystery appears to be The Fate of the Paper Currency of the world's largest debtor nation in a resource-poor world Post Peak Oil Production.
T1 Chaos calling... someone pick up.. (hello?... Jesus?.. ah, Imam Mahdi?? no, neither one is here - not yet anyway... but Happy Hour starts in a few minutes (before midnight) so call back then ;o)
Sorry, but demand elasticity is not mysterious at all, in my view — when you absolutely can't afford it at all, your gasoline (oil) demand will become "elastic".
Well that assumes a binary demand elasticity function, with a fixed level at which all fuel expenditures become suddenly unaffordable... which isn't how it works....
As price goes up consumption tapers off. Less essential uses are curtailed because on those marginal trips/travel, there are higher value expenditures for other things than fuel, ... higher value in the sense that they do a better job of maximizing the individual's overall utility function.
I am well aware of how it is supposed to work.
"when you absolutely can't afford it at all, your gasoline (oil) demand will become "elastic"."
Very good point Mr. Cohen.
And "how it is "supposed" to work" is also a very good point. The "supposed" part being contingent on pre-peak rules that do not necessarily apply.
Oil drives inflation and inflation drives gold.
The US was 50% of the global economy in 1945. It is now less than 20%
The rate of M3 growth is greater than 12%
The VIX (volatility index) has never been this low for this long.
...so if the US economy is the Titanic, have we hit the iceberg yet?
Related to this statement, one of the most unexpected and astonishing developments I've seen over the past year is the following, and it seems no care to discuss it.
1) per the EIA oil usage declined in the US for the first time in some, what was it, 20 years.
2) The economy not only expanded in 2006, it expanded more rapidly at 3.5% than in 2005.
What a tremendously optimistic couple of data points. I really do begin to believe PO has occurred, with a few more years like 2006, (i.e declining oil usage and expanding economic growth) however, I am not certain it will really matter very much. Granted that's a pretty rosy scenario, but really who would have expected declining oil usage and strongly expanding economy in 2006?
The growth is being financed by debt.... not sustainable by any stretch of the imagination
Disagree. Reduced oil usage and an expanding economy in one country means nothing in this age of globalization. Oil used to produce goods overseas and ship them here are not included in the numbers.
This offshoring could come back to bite us when TSHTF. If our main export is debt, who will want to trade with us? And we're losing the ability to produce our own.
Because the US wastes so much relative to, say, the EU (and China wastes a great deal relative to the US), the US can, no doubt painfully, substantially reduce consumption while maintaining gdp. I'm retired but still drive 16k miles/year. So, at a higher price many will choose to use less, some much less.
And, there's nothing really sacred regarding our standard of living - large cars, large homes, lots of vacations, over eating, over shopping, nobody has room for their clothes. A bit less would not be life threatening.
Regarding debt, you mean liquidity, something the world is mostly short of. The US has been running a deficit for half a century. THe exchange of our dollar denominated debt for goods allows many oil short countries (eg japan, now china plus other asia) to import desperately needed oil and other commodities. Very interesting that the dollar did better while oil price was rising - and many other countries had a steadily increasing need for dollars even as we too sent more dollars to exporters - than after aug, when the price fell and many countries had a proportionately lesser need for dollars even as we too sent less to exporters. What the dollar needs is higher commodity prices (and, maybe a bit less war.)
Leanan,
There are any number of ways to poke holes in these two single data points. Most of the demand destruction was likely due to an unusually warm winter in 2006. However, Jet fuel usage also declined in 2006. You are correct to point out that it may not be generalizable (though I think I saw somewhere that, at least, Japan also decreased gasoline consumption in 2006). It may also be secondary to peculiarities in the current economy which are unsustainable or metrics of the economy which aren't capturing the true state of affairs. I will say I think we will likely see $90 - $100/barrel oil this year, I also think we will see better than 2% economic growth and basically stagnant oil demand in the US. It is 3-5 years out that I think things could become potentially ugly if things don't change greatly. Still, I'll say again, I think these two datapoints are worth noting and are cause for guarded optimism. Unless we can decrease fossil fuel usage and still maintain a decent economy then we face the sort of possible die-off so avidly written about on many sites.
sobering interview. i think i'll stock up on vodka.
I prefer wine, but not too much, because I've been known to go off on some people... The Greeks said it, moderation in all things.
Moderation in all things, including moderation. ....I always sez
The trick is to stock up, and then use your HL methodology to calculate a URR such that you can stay happily drunk until a solution is found... (or not).
Renewable man.
Plant your own vineyard :)
FORTUNE, FEBRUARY 5, 2007.
Oil could go much higher if Shrub & Co attacks Iran?
http://mywebpages.comcast.net/bpayne37/index.htm#margolis
Hans Buehler told bill on the phone in the spring of 1995, "Hey bill, THEY have nukes!"
Look at this positively, THEY haven't nuked us YET.
Keep up wind, just in case Shrub & Co attacks Iran.
http://www.prosefights.org/reigps/reigps.htm
The lovely young woman who did the interview seemed somewhat shocked, don't you think?
The lovely young woman would be even more lovely when Peak Oil gets her to lose around 30 pounds of fat.
She wasn't *that* fat. Besides, it's good to have some 'energy reserves'. Having decent amout of fat doesn't even make you look that bad unless it stays with you for many years or even decades. I would assume it would become natural in post collapse life that you get some fat during the good years and lose it during the bad years. Fat is good but unfortunately we haven't had that much bad years in western countries lately so that we could lose the fat every now and then.
I think the interviewer did a good job.
She did note that she wished they had "four hours" (!!!) or something like that to continue the conversation.
I thought the interview went fairly well. The impression of Simmons that I got is that he believes we are at Peak now, but is not absolutely sure. He is pushing for folks to pay attention now, but also indicated that he suspects thst folks might not pay attaention for another couple of years.
People not familiar with PO will take away a general impression that there is this distrubing trend rumbling along largely unheeded. Some of them might begin to explore based on the informationm offered in the interview.
Those of us already familiar with PO can debate nuances or we can help folks become more aware of the issue. Experts who are interviewed will put their ideas out there. I can critique all day long, but I cannot say that these people are right or wrong, or that the way they present their ideas will do more harm than good.
What will do more good than harm is masses of people thinking like mebers of an endangered species rather than like empty-headed consumers. Go figure! :)
Hello TODers,
Just did a quick check of CNN, MSNBC, CBS, FOX, NYTimes, WaPo, Yahoo news, Google news--nothing on their homepages on the Simmons's interview, but plenty on celebrities and other junk news.
Even the Bloomberg.com homepage at 8:06 Az time had no mention of Simmons--guess it is all going down the Iron Triangles's Memory Hole instead of jumpstarting a national Peakoil Outreach discussion.
Since Bloomberg is mostly watched by Wall Street types--I would have thought from the get-go that the oil traders would have been asking Bloomberg for more details and further elaboration on the Simmons interview.
Even Rigzone.com has no reportage of Simmons.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Hello Bob Shaw,
What sort of news should one expect from this information. Matt Simmons is merely speculating when he says that Peak Oil has occurred and that oil should be $300 a barrel. There are plenty of predictions expreseed on the financial networks, they engage in this sort of behavior nearly 24/7, and nearly all fail.
At this point, no one knows for certain what is going to happen. When what is going to happen gets around to happening, the news networks will have something to report and talk endlessly about. Until that time there is no news story.
I watched the interview and wished that I could believe. I am inclined to believe and that is why I have no choice except to remain skeptical. I am still waiting for $80 a barrel oil. I won't begin to anticipate $300 a barrel oil until oil gets to, and stays above, $80 a barrel.
David Mathews
http://www.geocities.com/dmathew1
Hello TODers?
TDO you mean?
barnesandnoble
Think right.
:-)
In rpn.
Matt - it is quite clear to me that you are fully subscribed with oil futures and oil stocks and you are doing a great job at trying to talk the market up. In mentioning Mexico, UK and Norway you are biassing your attention to the countries that are in decline - you should of course mention the USA as well. Within the OECD, Canada is the only country with expanding production to offset decline else where. Should the OECD be concerned? Yes, very concerned
Decline in those countries is however offset by rapidly rising production else where. The BTC pipeline is bringing an additional 1mmbpd to market and along with Angola and Brazil my feeling is that peak is still 2 to 5 years away. In 2 to 5 years time we basically run out of major new projects (Skrebowskis mege projects) and at that point, when the larder is bare, new production will no longer be able to compensate for decline and TSWHTF.
As for $300 / bbl - I just don't think we will ever see that. At some point poor folks will either stop driving, buy a small car that does 50+ mpgs and the technology guys will build us hybrids that do 100 mpg equivalent. In Europe, flying is being taxed progressively higher and when oil starts to approach $100 and the realisation of shortage sets in these taxes will be escalated putting flying beyond the reach of the working classes.
Not sure about this one. This is in part related to the declining dicovery rate over the last 30 years. It is also related to the quality of those discoveries. In some cases, large discoveries lie undeveloped for decades owing to techncal / commercial issues - and these come under the "resource" as opposed to "reserves" category.
For sure, any major new discoveries made today will likely take over 5 years to be developed. Old discoveries, where investment decisions are made will as you say take around 5 years to come on stream. So I guess we will need to wait and see what Skrebowski comes up with for 2012. The only big new discovery I'm aware of recently is Jack. The exploration news flow from offshore S America and Africa is pretty thin.
Euan - a small independent in Russia may have a substantial NG find and there is enough speculation over a NG trend running north from Egypt to Cyprus that the Turks are deploying naval forces to protect their interests in the area.
Don't have links on these. Drumbeat has made me lazy.
Cheers!
Why wouldn't anyone believing in PO be fully subscribed to purchasing and holding assests in the oil and gas sector? Where else would you advise one holds their resources?
I won't give Mr. Simmons a 100% pass on this but I will give him the benefit of the doubt. I have no doubt he is a wealthy man and also have no doubt he is performing a valuable service in alerting the population of the upcoming challenges. A little shock value is necessary unfortunately for attention in the noisy celebrity fawning world of the MSM.
Matthew Simmons crosses the Rubicon-Declares Peak. There is no turning back.
When a person says something on Bloomberg Television, it has to be assumed they are aware of the commitment they are making to exactly what they say. It will be seen by some of the most savvy and informed people in the investment and business community.
It will be recorded, and well documented. It will sure call out the opponents to the person’s argument, and the most ardent attack dogs will be looking to gun down whatever argument any person makes, for no other reason than to get on Bloomberg themselves.
Today, February 1, 2007, on Bloomberg Television, the energy investment banker Matthew Simmons crossed the Rubicon. He declared that we have hit peak oil globally. He must surely know that there is now no turning back. Simmons once said that “I am betting my carreer on it.”, referring to his long standing concerns, speeches, writings, and projections concerning Peak Oil. For definitional purposes, Peak Oil is said to be that point when oil supply cannot match demand, and the total volume of oil produced cannot be raised to enough of a degree, or to any degree, to make the demand/supply balance. This means that only large increases in price and reduction in consumption (willing or otherwise, no matter how painful) becomes the only choice.
Now, Matt Simmons puts his biggest bet on the table, perhaps his final one. Because if he is right, the need for his type of projections are essentially over. All effort must go to emergency measures to stabilize the world economy, and move to emergency mitigation efforts. Guessing if and when Peak will occur would be like predicting the start of the world war after Pearl Harbor. It would have been a done deal.
If Simmons is wrong, he becomes simply another in a long list of people who have predicted doom, and missed. People would walk away, and shake their head, and Simmons could move to a comfortable retirement, based on his steller career as an investment banker. Simmons himself once said, “If I am wrong, I’m wrong. I’ve been wrong before.” But being wrong on Bloomberg television about the single biggest event of the modern age short of the birth of the modern age would end Simmon’s influence. His followers would still believe in him. His opponents would still scoff at him. But the larger culture would have no interest in his words or his cause. It is to be remembered that he must be right on both theory and essentially right on timing. For if Peak comes, but after 15 more years, or 20 more years, or 30 more years, it will be a completely different set of scenarios we will be facing by then. Matthew Simmon’s “peak” would have never occured, as conditions would have changed to the point by then that the “peak” of that time would be different in both scale and kind. No one taking Simmon’s words as gospal would be able to undo the changes, missed opportunities and new technologies that would have occured in the intervening time. The timing of crossing the Rubicon is as important as crossing the Rubicon itself.
For those who wish to stay with me for a brief overview of what Simmons did in fact say, read on. I must here make a disclaimer. It is said that if a person has an axe to grind, they should say it before beginning any argument, and make their biases known, so here goes:
I have a great deal of respect for the written and spoken words of Matthew Simmons, and believe that he has been one of the most perceptive of those who have proclaimed the arrival of Peak oil in the near future (by which I mean in less than 5 years). It is Matthew Simmons white papers and reports on his website that introduced me to the real intricacies of “peak oil”, and for me, as importantly, the gravity of the natural gas situation, and Matt’s predictions of natural gas crisis. On the gas issue, he has been proven right beyond a doubt.
I have however, become increasingly concerned by some of the people with whom Matthew Simmons words have become associated, and some of the people who have attached themselves to “Peak Oil” and used the authority of Matt Simmons words to further causes and agendas which have nothing to do with peak oil, or often,with oil at all. Many of these new adherents to “peak oil” have made very dangerous remarks, have proposed extremely distastful and dangerous “solutions” and have diminished the technical and scientific authority once held by the earlier experts on oil depletion and “peak oil”, by whatever name (These people being in my view, the true technicians and statisticians, M. King Hubbard, Colin Campbell in his earlier years, Ken Deffeyes in his earliest years, Jean Laharrere and of course Matthew Simmons. I must here include the words and statistics of Robert Rapier, and other TOD thinkers Westexas, Khebab, and Stuart Standiford. Even when I disagree with their exact position in detail, I have never doubted the seriousness and integrity of thier inquiry.
It is important to mention that even some of thse earliest pioneers of "peak oil" have become very flamboyant in language and given to completely non supportable and non provable contentions, and sometimes even damaging and potentially dangerous rhetoric. Caution is becoming of extreme, extreme importance in judging even the guiding lights of the peak oil cause. End of disclaimer, and I hope explains why I take the words of Matthew Simmons on Feb 1, 2007 of momentous occasion.
WHAT WERE MATTHEW SIMMONS WORDS?
At the opening of the interview, the hostess hostess Rhonda Schaffler says that Matt Simmons is saying that the world has “hit peak oil”. Simmons makes no attempt to soften this, and when asked what the price of oil should be, says that it is "incredibly inexpensive". He then gives the often used “10 cents a cup” example to point out how cheap oil is, and discusses it’s cheapness in China. Of course, it is impossible to know how much oil should cost per cup, since no one buys oil in that quantity! It is very much like pricing Starbucks coffee by the 42 gallon drum. to prove that no American can afford it, but of course, Starbucks is not sold that way, so people can afford it. But we will take Simmons point to be true, that right now, adjusted for inflation compared to many other important commodities, oil is actually incredibly cheap. I thiink if you compare to medical costs, housing prices, autos, status consumer goods and higher education, oil since the last major crisis in 1979 has indeed been a bargain, and still is. But if oil goes to $300 a barrel, that is only 50 cents a cup! Still incredibly cheap! Starbucks would still cost more!
Simmons goes on to point out the “steep decline” of Cantarell in Mexico (which is right at the heart of the doom argument right now) declines in the North Sea, both Britain and Norway, and that the Middle East is “out of capacity". Now, this is an area Simmons knows more about than most folks, and there is no arguing that Mexican Cantarell production is down (however, it is to be recalled that it has often been volatile and unstable before), that the North Sea is down (this the most serious and strongest of the cases for coming peak, as this area has been worked by the best, and seen all the tools of the oil reclovery trade, but to this point, is still in deep decline), and as to the Middle East, there is simply no way to know if there is extra capacity there or not. We have been BADLY fooled on this one before, and completely misguessed. This is why Simmons is indeed taking a very large chance in his projections/predictions.
But is Simmons predicting a “permanent peak”? That can be hard to know. Simmons, after pointing up the Mexico problem, the North Sea, and a drop of 800,000 to 1 million worldwide, then goes on to speak of other areas being “worked on” which won’t come onstream until 2008-2009. So does this mean that when that oil comes on, the peak is turned? Simmons goes on to say that “supply can’t” stabilize the price, which he then shocks the hostess Rhonda Schaffler by using a number of $300 per barrel. Her amazement was obvious, and then Simmons softens the $300 number...”I don’t know when”, and goes into a discussion of “liberating the workforce.” (?) and says “If we make the changes, we’ll get through this thing fine” but if we don’t, it could really be a problem.”
it is here that Simmons is really taking the middle road. Because if he were to begin to discuss the full implications of a decline in oil production of the magnitude that he himself is predicting, he knows that he would sound, heaven forbid, like Kunstler! It was obvious that Simmons was surprised that he had shocked Ms. Schaffler so greatly with his “$300 per barrel” discussion, and really wanted to soothe her feathers a bit (perhaps a product of raising so many daughters, one gets used to comforting and bringing security to females. I say that not as perjorative, I was raised with 3 younger sisters, and know the instinct well), but let’s be honest, it confused the tone of Simmons message and leaves one baffled. Immediate peak “could really be a problem”? That’s like saying a nuclear war could be dangerous.
And the whole discussion of “liberating the workforce was so completely removed from the need for immediate, concrete action and planning that frankly, it was surreal. I was deeply confused by that one, I will admit it.
Then, it became a pretty straightforwared discussion of oil supply: Our hostess Rhonda Schaffler asks where oil can be found. Simmons points first to the OCS (Outer Continental Shelf) of North America, Saying it has “barely been explored”. On this he is of course correct, and not exploring the OCS IF we are at any risk of peak oil, given the catastrophic situation that peak could cause if it came soon and without warning is nothing short of criminal on the part of our government. It is the one policy that could perhaps save lives and property if we are that close to peak, and with very little risk. It is here, on the OCS, that the deep, deep philosophical/aesthetic (not technical or economic) drivers of the Western Mind come into play. So Simmons thinks there is oil there, but how much? He doesn’t say, but he does say “we are running out of time.”
With this, Simmons begins a discussion of “25 year old rigs” and the size of the drilling fleet, saying that we let the oil industry “rust away”. Again on this he is absolutely correct, but we see a discussion here of something completely different than geology. What Simmons is now discussing is logistical peak. That is, the oil may well be out there in the world but the industry has been underinvested to the point that it cannot go get it. This has always fascinated me, because as much as I have read Simmons work, I have never been able to tell whether he is a theorist of “logistical peak” or “geological peak”. It is important to say again that logistical peak, the inability to produce oil due to “on the surface “ issues and not below ground issues can be just as damaging, even deadly, as “geological peak”, which is caused by a strictly geological scientific issue, that is, the oil is simply not there in the volume that can be extracted at an increasing or even level amount, and declines, no matter how much money, expertise and technology is spent (this is the example Westexas gives so well in reference to Texas and the Lower 48 of the U.S. circa 1970)
Now if what Simmons is describing is a world “logistical peak” we are in for some dangerous and very tough times, very volatile oil prices, and a wild ride. But, it would not mean that the world has permanently peaked, and in fact, the wild ride and the advance of newer technology could mean that in a few years, production would, at least for awhile widely exceed consumption and lead to price collapse and oil glut. This is the very great chance that Simmons is taking. We have seen this before, in the late 1970’s to early 1980’s, and many careers were ended on the rocks of a belief in the end of cheap oil, and the decline seen coming in production.
If what Simmons is describing is geological peak, then, bar the door, lock and load, because if it descends upon us that fast, there will be no “liberating the workforce” no use in worrying about the oil in the OCS, because it would be far too little far too late.
If that were the case, then Simmons in his effort to comfort the audience and his hostess Rhonda Schaffler, completely mistated the catastrophic situation we face. If Simmons believes that he is describing the latter, a true geological peak NOW, he is taking it extremely well.
So, Simmons has laid his final bet on the table. Disregarding the convoluted way in which it may have been explained, he has cast his lot with the PEAK NOW side of the debate. It is a great risk. We cannot know that this is not 1978 all over again. The decline in production of course proves absolutely nothing about the ability to produce. In 1979, every nation on Earth declined in production at once, declined by as much as a quarter to a third of their production, and stayed down on production for half a decade. It was the time of “peak everything, everywhere, and there would be no turning back, it was proven. Oil would never get cheaper. There would not, as some rubes claimed, someday be “more oil”.
Many careers were ended, and many stillborn, and decades of opportunity lost by some due to a belief in the above idea.
Simmons is in so many ways blessed. If he misses, and this ends his career, he ends it as a billionaire, who saved his error for the end of his career and not the beginning. He retires in comfort. But if he is right, the storm is on the horizon, and the world has never seen anything like it. If will be hard to find a safe place to retire to safely, even for a billionaire.
Even for Matthew Simmons himself, it will probably be better if he is wrong than right. It is to no ones benefit, not even his own, if he is correct.
This makes his words all the more believable as being given in complete sincerity, but still, unprovable. As Simmons himself often has said, we will only know in the rearview mirror.....” and we are running blind down a dark road with no lights.” That is a danger as great or greater than peak oil itself. The storm will come fast whenever it comes, and with very little warning.
Thank you, Roger Conner known to you as ThatsItImout
Excellent commentary, Roger.
I listened to Simmons’ interview a couple of times, and I found myself agreeing with most of what he said. $300 a barrel? He qualified that with “I don’t know when…” Well, I agree that at some point we will see that price for oil. We may see that inside of 3 years. I disagree with him that we have peaked globally, but I do agree that the supply/demand picture remains tight (not today, but it will probably tighten back up this summer), which could mean that we will soon be at “effective peak”, or “peak lite” without being at a geological peak.
Finally, did anyone notice that caption “We Need Urgent Search for Sustainable Oil Supply”? That’s quite an oxymoron. Yes, we need a sustainable oil supply. Anyone know how I might go about finding that (other than waiting millions of years for the supply to replenish itself)?
Robert - I trust you packed your shorts.
I did in fact. When are we hooking up? I am staying in a hotel (Skene House Whitehall) until next Wednesday, at which time I go into a house in Kingswells (chosen on the basis of proximity to work, which will be out of the PSN offices in Dyce mostly). I haven't gotten a car yet (not even a rental), so I am getting lots of exercise.
Thats just across the road from the school my kids attend. Lets go for a beer or several cases of red wine this weekend - best arrange this by email though.
Roger: I think this is incorrect. Simmons makes a statement to the effect that in some countries people are already paying a price which is equivalent to $300 a barrel. He does not forecast a price of $300 a bbl.
If you go up thread there is an entry by And1 here:
http://www.theoildrum.com/node/2239#comment-155607
And1 confirms that he is already paying a price equivalent to $300 a bbl. It looks as if he is in Holland if I have my currency abbreviations correct. There is a substantial difference between crude at $300 a bbl and a finished product price (pump price) which is equivalent to $300 a bbl.
I think we are in danger of distorting what Simmons actually said. The front quote on this item makes it appear that this quotation came from direct Blomberg. I believe both that front item and the projected price are a mis-attribution. Listen to it again and see what you think.
Dear NA Regarding the 300$/barrel for gasoline.
Prices are Danish consumer prices(not Dutch :-) for regular 95 gasoline converted to $/barrel. Here you can see the average prices in the EU last week.
http://www.trafikken.dk/wimpdoc.asp?page=document&objno=14758
For some reason the link do not highlight- but if you copy/paste the link it works fine.
regards/And1
And1 - Link works fine, thanks.
For comparison I just fueled up at $135 per bbl CDN. This equals $114.71 USD or 656.801 Danish Kroner on a per bbl basis. I think SIX may be on here and be able to provide a Belgian quote. Also Mattias in DK. We should be able to find out the highest per bbl price for pump petrol pretty quick. I'm curious who is paying the $300 per bbl equivalent.
Sorry for mistaking you for Dutch. Money I can never remember. Beer I can. Or rather uncan.
Cheers!
This article on financialsense a week back said similiar things about oil production.
http://www.financialsense.com/fsu/editorials/2007/0124.html
This is how I received the message:
- Peak Oil is now. Perhaps not today but very, very close. A year or 2 away max if we are not there already.
- It's the last chance to do something about it. There isn't enough time to really save our butts but we still can do *something* but it has to be done right now.
We've already tried the 'PO coming soon' approach. Too little has happened. Many people don't believe. Many don't really 'care' because they think they can't do anything about it. Or so they say. I don't *know* Simmons in person at all but my intake was that he's just about done. Those who listen should help themselves as much as they can but the rest can just... rot.
But that's just me. I'm sure you all heard a different message =)
I think "liberating the workforce" is about using computer and communications technology to avoid travel. We have only scratched the surface of this to date. People on this site have expressed skepticism about the potential here based on their experiences with such capabilities but I think that is because the potential is today so underdeveloped. Here is where the power down and end of civilization scenarios are so unrealistic. We are not facing a necessary electricity shortage. We are going to see dramatic mitigation through the ability to work anywhere. I am glad to see Simmons taking the lead in promoting that vision.
I think I have to disagree on this. I would argue the overall computer use would go down a lot. We can't run any real economy by just 'chatting' all day on the internet. Since you can't import everything anymore you will have to produce more, or at least assign more people to production. I'd bet over half of the people doing any kind of services for a living will have to move to the productive side of the economy. I just ditched the IT business for good about a year ago and started studying something a lot more concrete. So, the 'I would bet' turns actually into 'I did bet' and the wager is kinda high :)
The question how much prices will be rising post-peak is not so difficult to answer, I think.
Once there is public awareness of the problem, prices will easily shoot to $300+ as panic sets in.
It just won't last long.
Shortly after the price peak, the crude oil price will adjust to the actual value of the stuff to society - think of hordes of "energy slaves".
Currently, the oil price is a buyer's market - everybody has been pumping like mad and accepted whatever price the market will offer in order to sell all the oil.
After peak oil, it will be a seller's market - one in which the suppliers can - and will - set a price that is just bearable without causing a Manhatten Project style substitution process. It could actually even be that oil producers will drop production quicker than geologically necessary just to kill substitution projects by deliberately rising the oil supply again once such projects start in any significant number.
What do you think?
Cheers,
Davidyson
I think we will see a very very steep curve where long dated oil futures will rise signifcantly over spot.That by itself should encourage hoarding. But remember we see "some" demand destruction at every level. So I suspect we will run out of storage space at some point.
Also, a lot of the gasoline price is the "crack spread" as I am sure everyone here is aware. As peak oil hits refinery capacity even for sour heavy crude could increase over actual oil production and the crack spread falls. That could translate into lower prices at higher oil prices which would boost overall demand or rather prevent as much demand destruction as would otherwise happen.
Just how high will petrol(gas) prices have to rise for demand
destruction to occur in developed countries?
Here in the UK pump prices are about £3.90 per imperial gallon
(approx $6.41 per US gallon). My Mercedes gives just over 20mpg,
but as I usually drive less than 3,000 miles each year I would not
be unduly concerned if prices rose to £20 per gallon.
Even if prices rose to £100 per gallon I would still be able to
maintain (and even increase) my existing mileage by buying a Toyota
Prius or small turbo diesel car.
If my wife and I who are pensioners would be willing to pay at this
level to maintain our God given right to personal mobility, what level
of increase would be necessary to deter the really wealthy?.
Obviously to preserve social stability, Governments' will have to
limit demand by introducing rationing.
I would imagine, if EV’s don’t become a reality, that its possible that governments may ban the use of petrol/diesel for personal use
This has the convenient effect of creating huge demand destruction which will keep prices down for haulage/home heating/public transport.
You may well be able to drive around at £20/gallon, but your average delivery truck will be charging about £110,000 a year in fuel costs to the supermarkets, who will turn round and charge this to customers.
I’d rather have cheap food and cycle/take the trolleybus, than allow rich folk to drive prices up by non-value-added motoring.
There are other interesting effects at £20 gallon. A hectare of wood crop can generate about 14 tonnes of dry wood a year. One of the big Fisher Tropez type companies have a nifty technology that allows you to make ethanol from syngas, or you could make syndiesel. The technology requires 2.4kg of wood for a litre of ethanol, and will also provide you with some electricity co generation. If a biorefinery pays £0.60 per kg of wood at the gate, then a farmer could make £8,400 gross per hectare of land. That’s not bad going for a low input crop.
The refinery could then sell ethanol for £1.74/litre, which would make it about £12.66 per gallon of petrol equivalent.
Thus at £20 gallon, farmers would be heavily incentivesed to grow energy crops. Obviously there are scalability issues though.
Rhonda makes a great metaphor for Typical Citizen... Simply aghast at the prospect of crude at > $100. Thinks Bush's SOTU ideas are great. Plaintivly mewing questions about where there is left to explore. By the end, she has gone from chirpy to shocky.
Simmons says that peak oil will replace global warming as an issue of concern in the following year(s), my paraphrase.
I’m not sure.
Global warming is a comfortable matter for the public to worry about. Its reported effects tend to be ‘away’ (polar bears scrabbling on ice islets), far off into the future (rising sea level), impenetrable (dying species, new plant and animal life), scientifically disputable as claimed (see de-bunker shills), hard to grasp (so what if the temp rises one degree?), welcomed by many: .. Putin could open up Siberia; cool, no more long lasting ice in the winter on my steps! My heating bill is way down!- and, last but not least, raises the specter of world ‘Gvmt.’ or world legislation / collaboration, which is anathema to many and in any case almost impossible to either understand or imagine managing.
Most people’s daily lives are not impacted at all, the change is extremely gradual, and while in many places noticeable by the individual senses and brain, has a kind of inevitability about it - the Cosmos, Rays, Sunspots, warmer water, CO2, God, horrid humans, Weird Stuff! and only requires, it is thought, that people adapt to changes in the ‘weather’ as they have done for millenia, by growing other crops, moving north or inland, etc. etc. All together, it becomes a vehicle for smug catastrophism - exotic examples are thrilling - Tuvalu under water, wow! But who cares?
Peak oil will only become of concern when people are restricted in their use of it, either by ‘price’ or ‘availability’ or ‘legislation.’ Maybe Simmons was referring to such. (I realise it was a short interview, etc.) Meanwhile, they will prefer to shake their heads about this and that or the other, while carrying on as usual, what is the world coming to! hey people, the football game is about to start.
All solutions to increase supply will be made, eg otc, alaska, etc. Really sad... as pickens said, nothing inherently wrong with drilling alaska given today's ability to limit spills, but don't we want to leave anything at all for the kids? Is everything absolutely about us? The sooner we get used to drastically reduced consumption, the better for both our future generations and the planet.
Someone explain to me why prices will skyrocket post-peak? Please please do. And give me your data, not your opinions.
There are two factors here that many of you seem to be missing. One is the rate of global decline once peak sets in. Stuart frequently talked about this and spent extensive time trying to model what post-peak would look like. To him, it looked like a slow, steady squeeze with a slow decline.
Now here is a fact - for almost 21 months we have been producing less oil than the May 2005 peak figure. Yet prices have not skyrocketed. This is despite a growing US economy, a growing Chinese economy, a growing Indian economy, a growing Japanese economy, and a very slowly growing EU economy. This 21 months of roughly flat production is similar to what post-peak would look like to the markets. Why haven't prices exploded since May 2005?
I don't have data about what future prices will do but the current situation certainly argues that the assumption of skyrocketing prices needs some sort of model to justify it since the recent market history actually argues against it. In fact, what we have seen is the poor of the world dropping out of the oil market entirely, leaving more for the growing economies.
I am not at all certain that skyrocketing prices will occur post-peak immediately. Rather, I think prices will skyrocket and even large scale wars will ensue once there are no more poor nations to be squeezed off stage. When will that occur? I have no idea. But if we are post-peak today, we could meander along for years in slowly increasing prices as more and more of the world "goes Zimbabwe" (as Bob likes to phrase it) until one of the major players is facing being squeezed off stage. Then and only then will we see the huge bidding wars that I believe will turn into physical wars. For now the bidding wars are against the world's poor and they lose out with just a few dollars change in price. So while a price of $70 per barrel would annoy us, it would drive tens of millions more third world people out of the age of petroleum.
Key missing fact: How many third world consumers and how much third world consumption is completely removed from the oil market by a $1 rise in oil prices? If we knew that on average for every dollar increase that X barrels per day were freed up to be bid upon by the first world nations, we might be able to guess at when things might turn nasty. But lacking that sort of information, we can only guess. And if I have to guess, then at least for the near term, I am going to guess that things will continue largely as-is.
I remain a longer term "doomer" and this discussion is one reason why. When the time becomes desperate, I think it will land upon us faster and harder than we are used to imagining. Plus the combined multiple (more than 4!) horsemen riding towards modern civilization are not seriously being addressed at all anyway. But for the short term? Someone explain why prices have to skyrocket just because we are post-peak (assuming, for the sake of argument, that we are post-peak).
I think we may end up being one of the poor nations squeezed off the stage.
Dollar collapse/massive inflation is one way to $300 oil.
A dollar collapse and the US squeezed offstage would ultimately lower prices for a while, at least for the remaining consumers. Pushing the US offstage frees up some fraction of 21mbpd of oil. If we assume even a quarter of that, how far would prices fall with 5 mbpd of excess supply suddenly available to the rest of the world.
In fact, I don't think you can push the US offstage. At least not in one large event. The US will have to be shoved offstage a small step at a time (which, incidentally, happens to fit your notion of a slow catabolic collapse).
I tend to agree with you: Oil will not necessarily sky-rocket short of a major geo-political development. It will be a slow squeeze, to quote Stuart, that will result in demand destruction as sucessive price levels are breached. My fear is that as this demand destruction is occuring there will be increasing social unrest that will result in a geo-political incident. As to how and where, your guess is as good as mine. Unlike the 70's, there will likely not be severe shortages, only fewer and fewer buyers that can step up to the pump. The critical question is whether by the time that the price of gas results in public lawlessnes we will have modified our lifestyles such that the "middle class" can cope with the cost of energy. Based on Europe and the "riots" a few summers ago in England and France, I would venture that the tipping point will be around $10-$12 per U.S. gallon which corresponds to about $225-275 a barrel. This price will not occur until after the geologic peak where we will see the price change accelerating. My take on the data is that there will be a 4-5 year plateau in production near current levels resulting in fairly stable price in the 70-90$ range, after that, accelerating YOY increases at the 20% level.
On a slightly related topic, last night I saw something that made my head spin. The local Whole Foods was flogging "Estonian Birch Firewood" at $7.98 for about 1 cubic foot of firewood. I cannot fathom how shipping *firewood* from the Baltic sea to the fine denizens of Westchester county makes any sense whatsoever. It bogles the mind....
I read somewhere that it takes about 100 calories of energy (actually Kilocalories, of course) to ship one calorie of fresh fruit from South America by air to the UK.
One possible answer would be hoarding that begins upon global awareness of peak. Hasn't the US, China and India all annouced intentions to double their SPRs?
These are clever thoughts. However, I think it will not be entire countries that get priced out of the market. It will be individuals in all sorts of countries, starting with the poorest.
You are asking for data: The only indication of quickly rising prices is the development of the whale oil price when this became scarce - I think it went up 5-fold or so within a few months.
This price spike will happen as soon as everybody gets aware that crude oil has peaked.
Cheers,
Davidyson
Oh, and obviously, the price spikes during the oil crisis in the 70ies and 80ies also give some indication. It's all got to do with sudden shortages or awareness of shortages.
Cheers,
Davidyson