Perhaps trekker. But as time passes I'm beginning to feel that the half life of stupidity is just too long.

Whilst I'm no fan of jet skis, ATVs, snowmobiles and the like, these two men are likely leaving behind a partner or spouse, children and other love ones. I don't understand how any of us could derive satisfaction from their death.

Cheers,
Paul

"Life is what kills you, and this is not preventable."

Pro Lifers will love that!

They are actually essential travel machines for many northern communities, not toys.

That said, a GREAT many ski-doos (Western Maine Nickname) are surely used just for recreation.

Personally, I don't even generally XC Ski for fun.. I do it to get out to our cabin, to have access to snowbound places. THEN, being on skis is completely fun for me! Same for Bikes, Canoes, etc.. there is great joy in self-propulsion, and even in taking the right kinds of other transportation, as long as they are means to an end. They aren't the end themselves.

A lot of crazy concepts are spewed forth by the media... I often wonder who is doing it, and why. Government propaganda? Corporate propaganda? Ignorant reporters?

I question whether peak oil will lead to rising prices, when I never questioned this before. What if the good in question (Oil...) is so vital to the economy that we just recess, depress, and get poorer without being able to support higher prices in the face of shortages? And production drops (more than geologically determined) because we can't afford/finance further/more expensive production? Or alternatives...

What if we see falling prices and global economic collapse?

So oil sits at $80/barrel and society slowly collapses and we all get poor...

Another issue: Gail mentioned yesterday that she thought the financial crisis, going forward, would prevent us from burning enough fossil fuels to cause the worst of climate change. My thought has been that the financial crisis - ongoing - will make AGW WORSE. Solar and nuclear and alternatives to FF's will get ever more expensive, while our poor societies will cut down forests, burn oil sands/shale, dig up all the coal, farm destructively, and do all the desperate things desperately poor people do... making AGW worse than in some sunny technocopian solar zero-point energy future.

LOL I think Peak Demand is simply a politically correct way to say Peak Oil.

Couldn't agree more memmel, especially by those institutions most in denial of peak oil.

Whats amazing is that this concept is being spewed in the MSM. This is in my opinion far more worrisome as if we had any sort of real independent press one would think peak demand would have as many skeptical articles as supporting ones. Its the rampant social engineering thats the issue not the facts.

It's as if the denialist still have the upper hand in deciding what MSM reports. Surely a strange form as you state of 'rampant social engineering'. A willingness by the most powerful in the news to report in a way that keeps the populace believing BAU will come back as the recession theoretically, yet unrealistically is expected to wane in the face of high oil prices.

Gail, you have been pointing out how the economy goes into a stall once a certain price is reached. Call it peak demand or peak credit. I am wondering if you subscribe to the idea that some economies are able to function fairly well with say $80 oil and will continue to win out?

(So that OECD's, for instance, which cannot reconfigure themselves to the new price/availability/debt paradigm will continue to stagnate, thus allowing others to outbid them for resources)

IMO this way overall demand can still mirror HL decline while a 'fairly stable' high price forces 'prosperity' declines to be redistributed toward efficiency.

Gail, you have been pounding the drum for a while of how much a key is the role of money/credit in the peak oil/energy drama. It is finally starting to sink in to my thick noggin anyway. The close analogy, which has been noted many times before, is how enough food to feed 7B people is fairly easily produced each year, but famines or at least local shortfalls leading to starvation often happen because of money/credit issues. Same thing is going on in energy with some countries able to outbid others for the energy, even though some of these countries waste plenty of energy. There is likely 'enough' energy available to go around and I suspect, even as energy availability approaches true global shortage points, some will still have enough to squander while others starve.

Peak demand has a whole lot to do with peak credit

Wrong.

Whats credit used for i.e how is credit allocated ?

By far the vast majority of credit in existence is used to purchased long lasting fixed assets aka buildings or these same assets are used to secure credit. On top of this additional credit is granted for business based on cash flow and profits. On top of this unsecured credit lines for individuals are extended based on salaries from said companies.

Oil consumption certainly interacts with the world of credit. I.e you don't have cash so you use your credit card to purchase gasoline but the interaction between credit and oil is indirect.

Its fairly trivial to look at different regions with different credit availability and income levels and not that per capita oil consumption is not tightly correlated with credit. Its certainly correlated with longer term infrastructure aka roads and overall "wealth" on a broad basis. For example US consumers who generally have enough credit to purchase cars and roads to drive them on use more oil than a third world person.

But that has little to do with any short term flux in credit. Indeed looking at VMT which is a good measure of oil usage we find that after bottoming out its been rising.

http://www.fhwa.dot.gov/ohim/tvtw/tvtpage.cfm

Now as oil prices rose VMT flatlined then fell however again the relationship with peak credit is not simple.

For credit the number one issue is simple when credit is issues its paid back using a term agreement which splits the payment into principal and interest until the amount is paid off. Generally its a fixed payment based on the amount of credit extended.

Now if your facing both a credit bubble and rising prices for oil at some point you cannot expand debt indeed you face problems servicing your existing debt. Certainly you can conserve but if wages don't rise and prices for needed commodities such as food and oil rise then the price of oil is one factor contributing to peak debt. Not peak credit but peak debt as in servicing existing debt. Now this fairly naturally limits your ability to take on more debt and this coupled with rising defaults on existing debt results in peak credit.

Again looking at VMT the pattern seems to indicate that oil consumption was reduced to some sort of lower bound in fact below before rising again. This makes sense if oil consumption is closely coupled to the existing infrastructure. You can make some reduction but in the end your tied to the infrastructure.

Given that for most of the US the infrastructure is quite similar across the country then its not surprising that per capita oil consumption is not closely related to the large variations in income and thus associated credit in various regions. Indeed US household income varies from a low of around 20k to about 70k depending on the region while percapita consumption basically barely varies. Indeed its often lower in the higher income regions. Obviously someone making 70k has access to a lot more credit than someone making 20k and generally substantially more debt. The vast majority of that debt is in you guessed it housing.

Now one can consider price as the price of oil depends a lot on the elasticity of demand this depends on two things your ability to conserve which is determined in general by your infrastructure and your cash flow i.e how much income do you bring in a month. Eventually of course conservation is limited by the infrastructure when that limit is reached lets leave open except to say VMT suggests we are awfully close.

Of course the other side is cash flow at the extreme the wealthy i.e Bill Gates has effectively no limit on what he can pay for gasoline. At the other end is the guy working for minimum wage. Ignoring the super wealthy the amount you can pay depends on your wages and cost of living. Or your basic bills food,rent,utilities and debt payments. As the price of oil rises you have two basic choices you can lower your other living costs or conserve or of course both of course it also depend on changes in wages.

Now finally the price movement of oil itself depend on how much cash you have and how you allocate it. The more people are willing to allocate their income to purchasing gasoline the higher the price will go aka causing demand destruction where certain people are simply priced out and cannot allocate because they don't have the money. However thats not the only factor you can decide to reallocate your income to keep your gasoline usage constant despite rising prices.

Now we hit the critical point if you will. As gasoline prices rise at some point people have to decide if they are going to continue to pay their debt obligations. Sure if they rent they can choose cheaper housing however for many their debt and rent are the same because its a mortgage payment. And also for many selling is not a option as the mortgage is underwater.

The most probable outcome if you have falling house prices is people will default on their mortgage debt and as their credit rating falls or their lines of credit are used up default on revolving credit.

Now we get into a very direct relationship between oil and credit. If we face rising oil prices people have to make painful choices between using oil for daily life and maintaining their credit ratings and servicing debt.

In a large part the price of oil will depend on how this decision unfolds. Given most of the credit thats defaulted on is locked up in mortgages the impact of default is surprisingly little on the "real" economy.

The first round of defaults because of the combo of peak credit and oil certainly has a huge impact on housing construction but we are now well past that point. A further collapse of the housing industry esp new construction will simply have less and less a impact on overall oil usage. Certainly falling wages are a issue but invariably anyone that loses a job defaults on their debt. If they find another job the simply don't have the credit availability to expand debt.

Until this massive amount of outstanding debt is either paid off or defaulted on you have this constant interaction between rising oil prices and debt defaults.

For now at least it seems that this balance has resulted in oil reaching a price of around 70 a barrel which is quite high. If the supply is simply not there aka peak oil then there is really nothing keeping prices from rising as long as enough people are willng and able to default on debt so they can purchase gasoline.

Now whats really interesting is that once construction ceases further debt defaults have a smaller and smaller impact on the daily economy. Someone gets foreclosed on they rent a cheaper place and can buy gasoline. Job loss eventually leads to working somehow even if doing odd jobs this pushes personal fuel usage back up. Moving in with friends and family dramatically increases the cash flow available for food and gasoline.

Thus right at the peak you had a close coupling between credit and oil usage while people tried to hang in there and keep their credit but later on they steadily decouple as the consumer simply lives day to day without credit or debt. The effect of further defaults is concentrated in the top layers of our wealth classes amongst those that actually extended the credit aka banks, MBS losses etc.

The relationship steadily becomes one of continued credit defaults to continue daily life. Often increasing cash flow and allowing smaller cash purchases to be made out of savings.

Indeed we have seen a strong stabilization in all parts of the economy not linked to the need to take on massive debt outside of housing and cars things are basically ok.

Given that a fair precentage of people will choose the friends and family route for housing we also see falling rents and vacancies. The building crisis has extended to commercial real estate leading to falling rents for businesses all of this frees cash flow going forward.

Thus from now on out in general credit default will work to support peoples abilities to purchase gasoline even as the price rises.

This is very different from the original interaction where rising gasoline prices helped put a ceiling on credit and attempts to service credit in hopes of a short downturn cut consumption of gasoline.

Thus you end in the situation that the consumer now basically rejects buying anything that requires credit instead they live day to day and give up on home ownership preferring to rent as their incomes become variable and the rising price of gasoline steadily pushes out what they can afford for housing. And of course their tarnished credit records mean they can no longer buy regardless of income.

We can readily set in this loop for years or until most of the debt is defaulted on of course continued defaults will devalue our currency leading to higher oil prices and pressure on wages is non-existant as persistent high unemployment take hold etc etc. So other factors will eventually become important how fast is anyones guess.

And last but not least if we assume we have actually reached infrastructure based per capita consumption levels then gasoline demand will become rapidly inelastic i.e conservation will simply not help.

Given that most Americans have the out of defaulting on debt coupled with the intrinsic infrastructure issues I argue that the price of oil can go surprisingly high and we can and will pay for it.

We simply won't but houses and new cars. As we slow on buying new cars as we don't have credit the fleet fuel economy won't change much regardless of what overpriced EV's are offered for sale. Its literally a fight to the death. If you assume that the edifice somehow manages to continue then perhaps new infrastructure will be developed resulting in much lower per capita oil consumption and people will fundamentally move off of oil. However this is a very slow process and all the other factors seem to be much faster. Intrinsically the consumer can't get away with defaulting forever as eventually the country itself is forced to default on its obligations.

And one last thing obviously the economy moves rapidly back to cash this movement and the simple fact that expensive goods esp houses won't be bought means tax revenue will drop substantially. Falling wages will drive down income tax revenue. Our governments at all levels will face massive deficits. Pension plans unfunded etc.

If you look around then you will see that whats happening right now is rising defaults falling taxes and high oil prices that have no real intrinsic barrier keeping them from going much higher of course this leads to more defaults and devaluation of the currency and ever higher prices.

There are in my opinion no real constraints over the short term preventing this death spiral of default and currency devaluation and rising oil prices. Indeed sovereign defaults in other areas making the dollar a bit of safe haven is causing some short term reprieve. But its just a matter of time before all the fiat currencies start falling rapidly vs oil as intrinsic demand for oil and rejection of debt collapse the system.

Maybe it's time to get some sort of grip on the terms, the way philosophers do.

- Supply is the 'it' available at any given time. 'It' can be oil but doesn't have to be.

- Demand is the sccess to the means needed to possess and use the 'it'. The means is money or credit made available my some kind of economic activity.

- Consumption is 'it' that is actually made use of.

Demand is probably inelastic and is integrated with economic development and related expectations. These are set by marketing, television and peer pressure; general modernization such as the creation of 'icons' such as banks, high rise towers, expressways and parking garages as well as by available currency and claims mechanisms. Economic development promises higher wages and the possibility of means to acquire goods. Modernism is the 'style' which determines which goods are the most desirable. The level of demand relates to the level of overall economic development. Large amounts of consumer goods in markets is a key to demand as selling these kinds of goods - even in the underground or black market economies - provides the means to obtain both more goods and more means.

Demand is the mechanism by which drives fuel price bidding. In these kinds of auctions there is usually one winner and a multitude of losers, all of whom would have consumed the fuel in question had they not been outbid. In any event there is always a high and persistent level of demand. Demand is inelastic and is bounded by either by available supply or available means. (Hamilton)

The price is that which the market will bear - up to a point. High demand means consumption closely tracks production. Very high demand means a very high price even if the level of consumption is below that which might be suggested by consumption models or by inventories. In auctions, supply and demand are not mechanical, particularly if auction participants have methods to bring forward future demand and have the means to pay for those means. The implication of 'means- to- means' is that the market is highly derivative - both the presence and nature of derivatives amplifies demand. With derivatives, one bidder can act for multitudes.

There are also market dynamics that by themselves amplify demand in addition to the effects of derivatives. One outcome is that market bidders who do not win are nevertheless required to pay part of the winner's cost - as the price for participating in the market! This also effectively adds to demand.

If demand was declining as is suggested, the auction for fuel will have fewer participants and the price would decline, credit would flee the fuel markets for better returns elsewhere. There would be sufficient cash demand to gain the fuel and additional future demand would not be required. This would be the case even if the same amount of fuel was actually consumed in either high or low demand scenarios.

The difference is when supply is constrained. Demand becomes a credit/money phenomenon rather than an supply phenomenon. Any icrease in price requires adding credit to bring forward consumption, this increases demand and causes prices to rise further requiring the inpot of even more credit in a vicious cycle.

The current high price for oil and voracious demand for credit is one reason that credit markets all over the world are under severe stress.

Ultimately, it is the high real price of fuel - or anything else - that constrains demand. The real price is the productivity price of oil versus the productivity price of commerce leveraged from oil's use. Businesses and individuals do not profit much from direct fuel consumption. Returns on consumption speed directly to producers bypassing intermediaries who - in the past - profited far more from the commerce leveraged from fuel rather than from consumption of fuel itself. Keep in mind the supply and pricing structure of the petroleum industry was designed by John D. Rockefeller in the mid- to late 19th century to promote an expanding market for a good that had little function at the time. Rockefeller's aim was t keep prices low and the supply plentiful and convenient so that many businesses would use his fuels, earn profits and generate even more customers for his fuels. That model has been made obsolete by insatiable demand, the producers have gained almost complete control of the markets as a consequence. The intermediaries that remain are being squeezed ferociously; see the various Oil Drum articles about failing refiners, retailers and other fuel users. The declining money return on consumption - even when amplified by demand brought forward by cheap credit - means that the funds available to bid prices are shrinking. As Jevons has made clear, adding efficiencies into oil productivity simply amplifies the consumption that is brought forward shortening the time until energy use becomes unproductive, again.

All of this is evidence that peak oil actually took place sometime in the past. It is the marketplace actions of demand - not statements by bureaucrats or geologists - that indicates that oil is diminishing and that credit distortions are required to obtain it. Since the credit problems began in 2007 it is likely that oil on the market peaked some years before then, as the credit markets themselves would have required some years to construct institutional mechanisms necessary to make the credit available in the amounts needed. If five years were required to do this prior to 2007, the period of peak oil would then be some time before 2002.

Yes, Gail is absolutely right, the peak of demand is a matter of available credit. However that market aspect is also shifting and oil trading is becoming more of a cash business.

Monthly Chinese oil imports for the month of January rose 33% YOY

http://www.chinadaily.com.cn/china/2010-02/11/content_9459982.htm

China was building its own refineries to create downstream cash flow. India has been increasing refinery capacity. When Europeans will begin to realize carbon caps increase the cost of using oil and increases factory operating costs, they might need to close more gas stations and factories. Steel mills, electric utilities, refineries, and plastics industries are carbon intensive. Automakers and manufacturers need cheap steel, electricity, and transport for their supply and distribution networks. Consumers would rather buy Asian imports from factories using high energy, low cost fuels as inputs.

Gail, my training in civil engineering compels me to discuss water and sewer pipes in the UnCrash Course. I go out of the way to point out that infrastructure breakdowns will outpace our ability to refurbish or replace said infrastructure. Essentially, we have two waves of pipes coming due for replacement, those that last 100 years and were placed at the beginning of the last century (iron) and those placed just after WWII, which have a 50 to 60 year lifespan. Without lots of cash, those pipes will not be replaced or relined or even if they are we can expect numerous waterless days from municipal systems in the mid-term.

Now there are faulty materials to contend with. Oi, vey.

Makes me wonder if we are going to get the extra 20 years from all those nuclear operating license extensions....

Years ago they made polybutylene pipes to put in homes. The plastic pipes did not rust and did not require soldering. After a while the fittings started to break and there were millions of dollars worth of lawsuits. They do not use polybutylene much anymore.

I missed it. Thanks, Jim.

Gates on batteries: "So, in fact, we need a big breakthrough here. Something that's going to be of a factor of 100 better than what we have now."

Yes, William, it's a wonder nobody else thought of that. Well done. Here, let me give you the web address of some guys doing wonders in this area.

Hmmm, was that the wrong link?

If he could wish for anything in the world, Gates said he would not pick the next 50 years' worth of presidents or wish for a miracle vaccine.

He would choose energy that is half as expensive as coal and doesn't warm the planet.

He seems disturbingly unrealistic, for someone in control of so much money. I wonder if he is representative of the wealthy in general.

I spent an hour on Google looking into the Traveling Wave Breeder Reactor. I'd still like to see more details, but it appears to have a good fuel story, which is my primary concern about new nukes.

Unfortunately, it doesn't sound like there are any testbeds operating yet, so it's still very, very early. It's been reported that Gates talked at TED about a 20 year development cycle, followed by 20 more years to deploy. As I subscribe to the 2005 peak observation, and since I've read the Hirsch report, I see it as just 45 years too late.

Still, if Gates wants to foot the development costs...

Anyway, my biggest concern is that Gates, with his history of being stunningly successful in software, may have left an impression in the 1500 movers and shakers attending TED (at $6000 / seat) that he's got the answer to the energy problem in hand.

Britain was warned to prepare for a wave of coal and nuclear power plant closures and rising utility bills in an article published earlier this month. If they are forced to abandon natural gas due to its high carbon content their lot in life may not improve, but only worsen.

http://hotsearch.aol.co.uk/2010/02/04/british-gas-cuts-prices-but-power-...