Secrecy By Complexity: Obfuscation in Energy Data, and The Primacy of Crude Oil

The following is a guest post from Gregor Macdonald, adapted from his website

The dramatic fall of Mexican oil production, and its largest field Cantarell, is often cited as a signature example of the problems facing Non-OPEC supply. Since the production highs of 2004-2005, Mexican production has lost over 800 kbpd (thousand barrels per day) which is fairly dramatic for a country that was producing around 3.4 mbpd as recently as 5-6 years ago. But as accelerated as these declines have been in Mexico, there’s another oil producing region has seen even quicker declines. The North Sea, which comprises “United Kingdom Offshore, Norway, Denmark, Netherlands Offshore, and Germany Offshore” has just lost 20% of its production in 24 months. Daily production is down 600,000 barrels per day in that period. | see: North Sea Crude Oil Production in mbpd 2008-2010.

I mention this because as 2010 comes to a close, it appears that for the fifth year in a row the peak production year of 2005–in which the world produced oil at an average, annual rate of 73.718 mbpd–will once again not be exceeded. This is truly an astonishing result given that a new pricing era for oil began in 2004 as oil rose above 40.00 dollars a barrel. For over five years national oil companies and publicly traded oil companies have been free to sell oil into an ever-rising price environment. But no increase in global crude oil production has been forthcoming. Moreover, during the five year period from 2006-2010, global crude oil production actually fell in three of those years: 2006, 2007, and 2009. Equally notable is that OPEC–which currently accounts for about 42% of global supply– has been roughly steady in producing 30-32 mbpd each year during the same same period while Non-OPEC, accounting for 58% of world production has struggled with decline. | see: Global Annual Average Crude Oil Production in mbpd 2001-2010.

Another region in Non-OPEC that has disappointed is Canada. While Canadian oil production soared coming into the last decade, its production halted starting in 2006 and since then has oscillated around 2.6 mbpd. There is much hope for future increases from Canada and there is even a kind of mini-myth taking place in the US right now that Canada will be a strong source of future supply to the US. However, what has happened in Canada the past decade is that cheap conventional barrels of oil have been replaced with expensive tar sands barrels of oil. The result? Running in place in terms of supply, but at a much higher cost structure. | see: Canada Crude Oil Production in mbpd 2006-2010.

Canada is worthy of discussion for another reason, however, and that’s the creeping tendency of the public energy-data agencies to engage in some some channel stuffing. In the case of Canada, the high-cost tar sands production has now been aggregated into that country’s measures of “crude oil.” While not as egregious as including ethanol into publicly released data measures of oil, the alchemy and energy inputs required to turn oily dirt into usable petroleum can hardly be deemed as conventional crude oil production. To this point, one of the core methods EIA Washington and IEA Paris have increasingly relied on in recent years–to obscure the very serious and now very real problem of oil depletion–is to include biofuels and natural gas liquids in the accounting of global oil production. The technique that both agencies use to conduct this obfuscation is a familiar one, in which the key information is aggregated (buried) into a much larger barrage of data and presentations. For a scholarly look at the methods governments use to work around their obligations to inform the public, do watch the one hour lecture that Jay Rosen gave to the World Bank earlier this year. Rosen’s deconstructions of the media have been very helpful to me, over the past two years. See his blog here: Rosen describes the use of opacity as a kind of hiding in plain sight, or secrecy by complexity.

In order to rebut this Secrecy by Complexity it’s the obligation of responsible energy analysts to explain the falsehood of adding biofuels and natural gas liquids (NGL’s) to measures of oil production. The reason is simple: natural gas liquids are not oil. They are not oil in any sense and most important of all NGL’s contain only 65% of the BTU of oil. Worse, biofuels are barely an energy source themselves and are the product of a conversion process of other energy inputs. Accordingly, the world is not producing 84, or 85, or 86 million barrels of oil per day. The world is instead producing 73.436 million barrels of crude oil per day. The depletion of oil will not be solved by either by the production of biofuels and NGLs, nor their inclusion into oil data, as the world economy moves into the future.

When the EIA in Washington falsely composes such forecasts, aggregating future natural gas liquids and ethanol into a supply picture for “oil” as they do each year in their various projections, this disables the public’s ability to accurately understand the true outlook for global oil supply. While it’s still the case that EIA Washington produces data each month for Crude Oil production only, the predominant reporting and forecasting is now weighted towards “liquids”, the unhelpful aggregation of oil with NGLs and biofuels. But most unhelpful of all is that, in forecasts, the EIA has essentially dropped projections for global crude oil supply. For example, in the International Energy Outlook (IEO) 2010 public press conference this May the EIA released to the press the following slide-deck: International Energy Outlook 2010–With Projections to 2035. No accounting or forecast of oil is contained in the document. | see: Slide 6: OPEC producers maintain an approximate 40% share of total liquids production in the Reference case.

Little information of any use is actually provided by the projection shown above for one simple reason: the chart does not tell us about the actual energy that will available to society. More egregious is that even in the main body of the IEO 2010 report, more false aggregation occurs with a yet another term of complexity: Conventional Liquids. Indeed, it’s not surprising that OECD governments use opacity and secrecy by complexity to handle this extremely important issue. OECD economies are now structurally short energy supply, having lost access to the cheap BTU in oil that built out their societies over the past 100 years. The loss of cheap energy, the loss of the cheap BTU that oil has provided to OECD nations for the past century, is a crucial factor in the dilemma the West now faces: a newly chronic economic restraint that refuses to go away.

Data Notes: All Data through September 2010, via EIA International Petroleum Monthly.

"The depletion of oil will not be solved by either by the production of biofuels and NGLs, nor their inclusion into oil data, as the world economy moves into the future."

In terms of the peak oil crisis, my understanding of oil is:

That which can be used to power an internal combustion engine and create plastics and other petrochemicals

Definitions based on the specific chemical structure of mined materials while chemically signficant have no economic significance or significance to civilization if they can power a car and make plastic.

My understanding is that both tar sands and NGL can be converted into fuel that is capable of both making plastic and powering internal combustion engines, albeit at a higher price.

While the price of producing oil is important it is not economically significant where those prices are incurred for example in deepwater oil most of the price is incurred during extraction with less cost involved in refining, with with venezualan heavy oil or tar sands, there is less cost involved in extraction and more costs in refining, nonetheless from an economic point of view, tar sands should qualify just as much as crude oil as deepwater oil (although less than Saudi Arabian oil)

Also I'm not sure how crucial it is for oil to have a high EROI, maybe its just important for something to have a high EROI. Maybe its acceptable and sustainable in the immediate future to use nuclear energy or gas extracted at high EROI to generate oil from tar sands (or through converting gas to oil or coal to oil), for use in transport and plastics manufacture. If this can be achieved below the oil spot price then I don't see why these liquids should not be included as oil.

jm - Whether one includes other liquids or not depends upon the information one is trying to impart. If the goal is to highlight the decline of crude oil production over time them including all other fuel sources is improper. You can't project a future production trend of one commodity by including other commodities in the analysis. OTOH if the goal is to project future available fuel sources than it's very appropriate. Thus whether including all liquids is the correct answer depends on the question. Studying the curves seperately can be enlightning. Combining the two projections only confuses the reality of the situation IMHO. And the point being that in some instances that may be the goal.

Changing definitions mid-stream is dubious -- in the world of scientific and clinical studies, it is a red flag that something is up (recent example, relevant to me, was the shift of the goalposts in the Zetia/ezetimbe study a few years ago -- followed sometime later by a negative result). Any time this happens, don't just watch your wallet, grab it and hold it tight.

One problem this can cause is accidental double-counting -- if the new definition of "oil" says we have enough "oil" (and by implication, energy, and perhaps even by implication, cheap energy) for decades to come, and we already "knew" we had enough "natural gas" (based on previous definitions and projections) to last for a century, why then we are golden, aren't we? But of course, if we are using NG to make "oil" then our consumption rate is going to go way up.

But if we change the definition of an oz of gold then we are all richer -- right?

Whether one includes other liquids or not depends upon the information one is trying to impart. If the goal is to highlight the decline of crude oil production over time them including all other fuel sources is improper.

Such is true - if you are trying to determine if crude oil production is declining, then adding in NGLs and biofuels just obfuscates the issue. However, I think it is possible that obfuscation of some politically inconvenient facts is one of the goals of these government organizations. I think some governments don't really want their people to know how bad things are getting in terms of crude oil supply.

There is an argument for including condensates from gas wells and pentanes plus (C5+) from gas plants in the "liquid fuels" category, since these are liquids under atmospheric conditions and can be blended into the crude oil stream going into the refinery. In fact, many refineries would want to do this because it improves their yield of gasoline, which will be low if they are processing a lot of heavy oil. This is particularly helpful in the US where the demand for gasoline and asphalt is high, but less so in Europe which wants a higher cut of diesel than a condensate+heavy oil mix would provide.

But the lighter NGLs - ethane, propane, and butane - are gases under normal atmospheric conditions. They have different markets, such as petrochemicals, or heating/cooking fuels where natural gas is not available. You can't just indiscriminately blend them into gasoline because they will cause fuel systems to vapor lock under hot conditions. A refinery would prefer to sell them to a petrochemical plant, which is why they are often built side-by-side.

And biofuels, which mostly means fuel ethanol, is problematic because it really involves some double-counting of "oil" production. Refineries are producing diesel fuel, which farmers then burn in their equipment to produce corn for ethanol which the refineries blend into their gasoline. This is just an indirect and expensive way of converting diesel fuel into gasoline. It would be more efficient for the refineries to enhance their refining processes to produce less diesel fuel and more gasoline, but then the total volume of "oil" produced would be lower.

So, the EIA in Washington and the IEA in Paris are producing numbers which are highly misleading. They purport to show that oil production is remaining stable, when in reality it is starting to decline. For the politicians, it does avoid the inconvenient question, "What are you doing about this problem?" and the even less convenient reply, "Well, nothing, really."

Well said RMG,

The bottom line that everybody should be closely looking at is the global amount of net energy generated from all available energy sources.

If the available amount of net energy is declining, in particular despite increasing extracted volumes of various types of hydrocarbons, then humanity is collectively in trouble...


P.S: Another strategic issue to consider is of course the capacity of the existing society infrastructure to process the net energy that becomes available from various sources in various forms. For example, if the global energy mix starts to shift and net energy becomes mostly available in the form of exracted coal but most of the transportation infrastructure (cars, trucks, cranes, boats, trains and planes) cannot use the energy available in that form, then we also have a problem...because we have huge amounts of capital sunk into the existing infrastructure and replacing that infrastructure with something else requires a great deal of time and capital.

Jonaton said,
If the available amount of net energy is declining, in particular despite increasing extracted volumes of various types of hydrocarbons, then humanity is collectively in trouble...

The likely outcome -
It is! (declining)
And, WE ARE! (in trouble)

replacing that infrastructure with something else requires a great deal of time and capital.

...and energy.

Refineries are producing diesel fuel, which farmers then burn in their equipment to produce corn for ethanol which the refineries blend into their gasoline. This is just an indirect and expensive way of converting diesel fuel into gasoline.

This is just plain wrong. Ethanol is a Gas-to-Liquids process, with a (small) net energy gain, a huge economic gain, and a lot of dry distillers grains feeding livestock. The bulk of the energy used is natgas to make ammonia fertilizer, and natgas to run the distillation. The diesel used to run farm equipment is damn near in the noise. Trucking feedstocks and products around takes way more diesel than minimal-tillage corn farming does *.

* Does not apply with diesel-powered irrigation pumps.

Well, granted, the use of natural gas to create nitrogen fertilizer is the biggest energy input into creating fuel ethanol. Coal to generate electricity is another big input. The use of diesel fuel for farm equipment is a smaller input, but the diesel fuel to transport crops and run irrigation pumps is also significant.

But it's not really a gas-to-liquids process, it is a food-to-fuel process and has the secondary effective of driving up world food prices. This is not a minor effect - much of the world has become dependent on imports of cheap American corn, which is becoming less cheap as it is turned into automobile fuel.

I don't see the economic gain, because agricultural production and irrigation are heavily subsidized in the US. Turning corn into fuel ethanol just adds even more subsidies to get rid of the corn surpluses caused by the agricultural and irrigation subsidies. It's piling subsidies on subsidies.

At the end of it all, the whole fuel ethanol system is just a huge mass of subsidies that could be eliminated by forcing car companies to build and people to buy more fuel-efficient vehicles. Instead of putting 10% ethanol into gasoline, Americans could just use 10% less gasoline by buying smaller vehicles - which of course people in almost all other countries already do. The main losers would be industrial-scale corn farmers, oil companies, and automobile companies. However the latter groups have much better lobbying organizations than taxpayers do.

I don't see the economic gain, because agricultural production and irrigation are heavily subsidized in the US. Turning corn into fuel ethanol just adds even more subsidies to get rid of the corn surpluses caused by the agricultural and irrigation subsidies. It's piling subsidies on subsidies.

Although you haven't mentioned the loss of an opportunity to allow land to rest and regain its composure, your comment, not just the sentences I've blockquoted, is about as good as response to the grain ethanol touts that I've seen.


I hear a lot of talk about how it's better to let the let the land lie fallow from non-farmers, but the only place anyone puts their money where their mouth is are *government* Conservation Reserve Program subsidies.

Get rid of the 'take-the-land-out-of-production' subsidy, and all the tillable land will get planted. This is what happened when New Zealand eliminated farm subsidies. Intensity of farm operations went up, as farmers had to get produce more goods to maintain income.

I am working on business plans that eventually involve buying land. I'll believe the talk about how letting land lie fallow is good when I can start putting a per-acre revenue I can get for leaving it fallow into the business plan. Until then, I am digging up new markets that involve making my own fuel to transport farm goods directly to a city center.

Letting land lie fallow is a tradition that dates back to Biblical times. Allowing land to lie fallow serves to accumulate moisture in dry regions, and to discourage weeds and plant diseases. This reduces the need for irrigation and the use herbicides and pesticides.

The practice dates back to Biblical times.
Exodus 23:10

For six years you are to sow your fields and harvest the crops, but during the seventh year let the land lie unplowed and unused. Then the poor among your people may get food from it, and the wild animals may eat what they leave.

Obviously the Bible intended to discourage people from overfarming their fields, and in addition to feed the poor, and preserve wildlife. These are some concepts that have been lost in modern agriculture.

Letting land lie fallow was traditional in Europe during the Middle Ages - they originally used a two-field rotation system in which they grew crops on one field and left the other lie fallow, and then switched the fields the next year.

Later they switched to a three-field system in which they grew cereals on the first field, legumes on the second, and let the third lie fallow. Then they rotated the fields over the following two years. This allowed the legumes to restore the soil nitrogen removed by the cereals, and the fallow fields to restore the soil moisture before they put cereals back in again. The whole concept is to not destroy the land fertility or use up too much soil moisture, and does not depend on fertilizers, irrigation, or herbicides.

Paying farmers to take land out of production seems to be a uniquely American concept, which encourages farmers to maintain production by farming the remainder of the land more intensively. Other countries would just put quotas on crops. You're not allowed to produce more than your quota per hectare, which discourages overly intense farming and keeps costs down.

That being said, almost every industrialized country over-subsidizes agriculture. It seems to be motivated by nostalgia for a rural past rather than common sense. The whole concept of solving the problem created by agricultural subsidies by using using more subsidies to turn the surplus into fuel is something that bothers me. It's just basically wasteful. The EROEI of fuel alcohol is just terrible and it doesn't do anything to reduce consumption of fossil fuels.

The EU uses roughly 50% of its budget to subsidicefarmers to grow stuff no one need. (And a good chunk of the remindre to translate every written document and every spoken word in the parlamant into all languages of the 27 member states). What a waste.

The question that ought to leap to everyone's mind is "if instability in the markets is the problem for farmers, why shouldn't the government guarantee a market for a certain amount of production depending on the amount of food in storage?"  Farmers who planted more than their quota of acreage would lose their access to the system.

Unfortunately, interest rates, inventory taxes and other carrying costs mean that private entities can't fill that niche.

And biofuels, which mostly means fuel ethanol, is problematic because it really involves some double-counting of "oil" production.

I fully agree about this with RockyMtnGuy. Part -or most- of the energy included in the bio-ethanol comes from oil or from natural gas, so we can not say that ethanol is primary energy. IMO ethanol should not be included in the "all liquids" statistics, if what we want to consider in this category is primary liquid energy directly extracted from the Earth.

This is not the same for NGL, and I disagree with RMG in this

But the lighter NGLs - ethane, propane, and butane - are gases under normal atmospheric conditions. They have different markets...

and with Hagens in this

When the EIA in Washington falsely composes such forecasts, aggregating future natural gas liquids and ethanol into a supply picture for “oil” as they do each year in their various projections, this disables the public’s ability to accurately understand the true outlook for global oil supply.

It is only partially true that NGL have different markets to oil; NGL is a direct substitute of many oil products. In many countries, NGL are used directly in vehicles equipped with standard gasoline motors and special pressurised tanks; also, propane distributed through local networks is also used as home boiler fuel instead of diesel oil. In the long term, this may become more common, so it is fair to consider that an increase of the production of NGL improves the security of supply of oil.

The main advantage of oil derived products with respect to natural gas is that they are liquid at atmospheric pressure and standard temperature. This is not the same for NGL, but the pressure required to store propane or butane at a normal ambient temperature is not a problem. In other words, it would be no problem that all the oil of the world is depleted if there is still enough NGL.


Production should be reported on a net basis - i.e. gross production less "liquids" inputs - for all supply, including crude oil. That may be more difficult, but I am sure suitable protocols could be developed. Not counting coal and nuclear that are converted into liquids without a deduction for these inputs is fine because they are not (yet) in short supply. NG is a bit more problematic. Supply seems abundant, yet its use to produce liquids from tar sands is absurd. It is the equivalent of turning gold into lead. On the other hand using gas that would flared off on a production platform for on board energy should not be counted.

Perhaps someone with the knowledge at TOD could estimate net production figures for all types of liquids production and produce alternative figures that challenge the EIA and IEA. TOD gets wide readership now and is highly respected.

No, any given ICE doesn't care (setting aside the issue of ethanol deterioration of rubber parts) where its energy comes from. It just wants BTUs. And will consume a given amount of BTUs per mile driven. The reason that it's obfuscation to include biofuels and NGLs in reporting 'oil production' as 'total liquids' is precisely because NGLs have only 2/3rds the amount of energy per volume as does crude. Worse, the production of a unit of ethanol requires the consumption of roughly one unit of FF. This is a combination of diesel, NG (others?). So including ethanol in total liquids is pretty much straight up double counting. What matters to society is how much energy is available to do anything other than acquiring more energy. This is what net energy means. When the total liquids number is flat, and includes biofuels and NGLs whereas before it did not, we have, shall we say, a less than clear picture of the net energy curve. But simply netting out ethanol and reducing the effective contribution of NGLs by 1/3 shows that it is declining, not growing, or even staying flat.

ICE care VERY MUCH about what the fuel is. . You can make/adjust engine components of a given engine, but the leeway is very small. There is all the hoopla about allowing 15% ethanol in gas, from current 10% and people are afraid that slightly older cars will not make it on 15% ethanol. Change octane number by a few percent and engines wear down so much faster. Gasoline, methanol, ethanol, diesel, liquid (compressed) propane and what have you else engines need quite different engineering.

Fair enough, CC, but utterly not my point. Note that I said they don't care where the fuel comes from. By that I mean they (these inanimate hunks of metal) don't care whether the gasoline that fuels them originated as crude oil, or was processed from tar sands (or whatever else is possible - I know nothing of the chemistry/engineering involved). But what matters hugely in this equation to society at large is how much NET energy is available to be burned in said engines, or used otherwise. And when we get reports such as these that combine inputs that have different energy values (NGLs vs crude), AND which require significantly more processing energy (ethanol), then the results/trend/scenario is horribly obfuscated. And because we exist in a corporatocracy, it shall ever be thus, right over the cliff or into the wall or pick your metaphor.

Yes and no. The yields of various fuels depend on the input. And if the inputs are very heavy (oil sands) and very light (gas liquids), they do not contain the carbon chains we want for gasoline, diesel, and kerosene. It is possible to crack longer chains and must be possible to deal with C4, C5, C6, but it costs $ and energy. But regular crude oil has "gasoline" and "diesel" and "kerosene" hydrocarbons in the mix already.

but it costs $ and energy.

This is my point... net energy is what matters.

My ICE (unmodified 2001 toyota Prius, 180,000 miles) does just fine on anything from 0% to 50% ethanol. It's changing that concentration number quickly that confuses the control system.

The hoopla about 15% ethanol in gas is FUD (fear, uncertainty, and doubt).

In Brazil, everyone *expects* to be able to fill up with whichever is cheaper per-mile traveled. Sugarcane ethanol, or petrol. Are the wheels falling off of flex fuel cars in Brazil?

No, they are not exploding, but they are designed as flex fuel. Oxygen containing fuels have higher octane numbers and I am pretty sure that the compression ratio of your Brazilian Prius is higher than that of US or Canadian one.

A quick search on the net: Prius seems to have a compression ratio of 13.5:1 which is higher than normal 9-11:1 for gasoline cars, and they seem to be playing a lot with valve timing to get high efficiency and low power.

That's the geometric compression ratio.  The actual compression ratio of a Prius is considerably lower because the intake valve closes late; this yields the asymmetric compression/expansion ratio of the Atkinson cycle.

Incidentally, the mechanical arrangement of the original Atkinson engine is inspired and worth looking at just for the wonderment.  I'd post a link to the animation I like, but I can't find it ATM.

There is all the hoopla about allowing 15% ethanol in gas, from current 10% and people are afraid that slightly older cars will not make it on 15% ethanol. Change octane number by a few percent and engines wear down so much faster.

Modern engines are rather insensitive to octane rating. If you put low octane fuel into a car, the knock sensors will detect it and the engine management computer will back the ignition timing off a few degrees to compensate. The net effect will be a minor loss in power. You won't be getting full value out of that high-performance engine you foolishly bought without thinking about the cost of premium fuel. But it will last just as long.

However, alcohol levels above 10% can be a problem in a lot of cars that were not designed for it. It will dissolve gaskets, seals, and other components in the fuel system, screw up the fuel injection calibration, and cause other problems. Having to replace the entire fuel system is rather expensive, so don't use high-alcohol fuels in cars that were not designed for it. Read your owner's manual to be sure. If it doesn't say you can use high-alcohol fuel, assume that you can't.

The reason that it's obfuscation to include biofuels and NGLs in reporting 'oil production' as 'total liquids' is precisely because NGLs have only 2/3rds the amount of energy per volume as does crude.

That's true as far as it goes, but with technology like liquid petroleum gas injection (currently marketed by Hyundai) the thermal efficiency of NGL engines can be enough higher that all or much of the difference is erased.

It's true that we don't use most such fuels in that way.  That's the big problem.

I'd very much like to read a post (or paper) that addresses just the utility aspect--or useful work aspect--of all liquid fuels regardless of source, just for the sake of the points you raise. I certainly agree that specific regions and countries, at certain times in history, have elected to optimize resource production merely to obtain liquids--regardless of whether that process was either barely positive in energy terms, or even negative in energy terms.

More broadly, I do alot of work and research on coal. But as I'm sure you would agree, neither coal nor natural gas will translate easily now for the benefit of societies/economies who have leveraged their built environments to oil over the past century. As a mitigation of the loss of expanding supply of energy-dense oil, therefore, the actual use of biofuels is to me a bit like additional credit-expansion to the economy. It introduces some fresh liquidity but it's not very sustainable.

In my post here, however, I try to keep the focus a tad more narrow. Instead of addressing energy transition itself I am simply taking a swipe at the information we're provided by our government, and the disabling effect of so much complexity. I'm actually not fully negative on biofuels per se, for example, and I see a role for them as a local fuel--not carried by pipeline. Also, in terms of all energy-source supply, I actually lean positive on that score. In my view the world has lots of energy. It's just that the world we built is not set up so well, to easily use it.

Best, G

Superb work Gregor. You honed in on the data and the graphs in much the same way I did on my energy blog. I was annoyed by the prominent graph posted in the IEA report that on first glance looked hopeful but a closer look revealed that it was a bit of a chimera. Thank you for pointing this out. I pointed out some other peculiarities of the report and of the IEA on my report as well. FYI

But as I'm sure you would agree, neither coal nor natural gas will translate easily now for the benefit of societies/economies who have leveraged their built environments to oil over the past century.

Exactly. Our civilization was built on super cheap abundant oil, and everything that goes along with that, including our credit system, high population, infrastructure, etc. And along with that come expectations. Look for example with State pensions, which were established during the cheap oil era but now make no economic sense. What about the trouble GM got into with their overweighted pensions? Look at the cost of a college education today compared with the cheap oil era. What about the cost of infrastructure replacement, like bridges. NY cannot figure out how to come up with enough money to replace some of their obsolete bridges connecting Manhattan to the other buroughs.

Civilization was easy to build on cheap abundant liquid energy, but increasingly difficult to maintain as the cost of energy rises. At some point, which we may have already passed, civilization decays around us as we fail to rebuild and maintain basic infrastructure needs. Roads, bridges, tunnels, power lines, communication lines, aquaducts, oil pipelines, buildings etc. can only decay to a certain degree, then as parts of it no longer work the entire system reaches a point of obsolescence, collapse.

At that point the mass production of food in plants where a quarter million loaves of bread can be cachunked out every day or a million gallons of milk production from just one plant stops. How do you go from an electrical, mechanized, highly complex civilization capable of supporting over 300 million in the case of the US, to simply surviving at the local level? How many people can make the transition? How many will that new way of living support? What's a realistic prognosis?

At that point the mass production of food in plants where a quarter million loaves of bread can be cachunked out every day or a million gallons of milk production from just one plant stops. How do you go from an electrical, mechanized, highly complex civilization capable of supporting over 300 million in the case of the US, to simply surviving at the local level? How many people can make the transition? How many will that new way of living support? What's a realistic prognosis?

Well put. Someone should show this to MikeB and then ask him if still thinks Greer is so off the wall with his statement about people who depend on medication for survival dying due to peak oil. Given the above scenario it seems highly plausible that not even many fit and healthy individuals will be able to make such a transition, so what hope do those that can't survive without medication have? Granted we could all be completely off the mark with regards the possibility of our civilization collapsing due to peak oil... I just wouldn't bet on it.

MikeB has admitted to being a "hack," so why are you preoccupied with what he says?

Here is as elegant a statement of the problem as has ever been composed. I can quote it verbatim to people. I will not even need to cite the source:

The lesson is that zero population growth is going to happen. Now, we can debate whether we like zero population growth or don't like it, it’s going to happen. Whether we debate it or not, whether we like it or not, it’s absolutely certain. People could never live at that density on the dry land surface of the earth. Therefore, today’s high birth rates will drop; today’s low death rates will rise till they have exactly the same numerical value.

Not you, not me, not anyone knows how this is going to happen. We could have people dying from lack of meds in one area of the globe, while conditions in another part of the globe actually improve. You just don't know.

And people who are not scientists have no business speaking out of their you-know-whats about it.

Another thing: If the patient is as dead and gone as the True Believers of Doom on TOD assume, then why are they continually shouting into the patient's ear: "YOU'RE DEAD! YOU'RE DEAD!"

Why aren't they telling fart jokes instead? The dying patient might appreciate it more.

Better yet: How many of those who actually believe Greer's doomer glossolalia are now hoarding medications for their drug-dependents Grandmas? If not, why not?

If there were a Cat 5 hurricane headed for Grandma's house, and you knew it was headed for her house, I bet you'd risk life and limb to drive to Grandma's house, drag her out there, thereby saving her from the path of the hurricane. If not, what kind of a grandson are you?

Grandma dying from lack of meds due to peak oil is a serious issue! I propose a key post that advises people on how to hoard all the necessary medications to keep her alive.

What earthly reason is there for the birth and death rates to equal out? Unless you refer to the momentary point when one value passes the other.

If the death rate is rising, it will almost certainly be at the expense of those that have helped lower it to begin with. So the average life span will drop. That implies old people will die sooner than if they had access to their 'meds' and the infant mortality rate will rise. These are the two main causes for the population increase.

The birth rate is less likely to change as much as the death rate, although it may come down some. There are far more ways to die once you have been born than there are to not be born in the first place.

As for Grandma in her house. Most meds have a use-by-date on them, so hoarding is less of an option. It's not even a lack of production of the meds that will be the initial problem but a disruption of supply. We will have to wean ourselves off the idea that everyone can and must be saved no matter what the cost.

What kind of Grandson leaves the poor defenceless old dear to live in a house that's likely to be flattened by a hurricane? Maybe it's time to rethink the family values.

What kind of Grandson leaves the poor defenceless old dear to live in a house that's likely to be flattened by a hurricane? Maybe it's time to rethink the family values.

I couldn't have asked for a more well-stated example of the moral bankruptcy of the strictly dogmatic doomer point of view.

Thank you!

I find it odd that youre reading of that wasn't to say - "Come and live with us Granny, it's obviously getting too dangerous for you to be living alone". But then my moral bankruptcy is of the UK variety not the US.

Your comment was in response to my specific question: If people actually believe what they say, then why aren't they taking the appropriate steps to deal with the situation?

Your comment and its context:

We will have to wean ourselves off the idea that everyone can and must be saved no matter what the cost.

What kind of Grandson leaves the poor defenceless old dear to live in a house that's likely to be flattened by a hurricane? Maybe it's time to rethink the family values.

Now you're saying you didn't imply what you were implying.

It's like hearing Sarah Palin say those crosshairs weren't crosshairs but really surveyor's marks.

Your inference was that by not going to save Granny from the hurricane I must be morally bankrupt. My suggestion is that by leaving Granny to live alone out there in the first place I must be morally bankrupt.

You seem to believe that this mythical Grandmother has an inalienable right to live alone and yet be protected from everything that nature can throw at her. Hurricanes, medical problems, accidents etc.

It's time that our society grew up and started taking responsibility for its actions. Emergency service are a prime example. People insist in taking part in extreme activities and then demand to be rescued when it all goes wrong. Well, the time is coming when that rescue wont be there. In fact here in the UK the Coast Guard stations are being reduced to just 6 for the whole country. That's not going to bode well for some poor soul(s).

If you truly had Grannies best interests at heart you'd have her move in with you where you all have a fighting chance to look after one another. Hence my comment of rethinking family values. If we assume that Granny can't get her meds for whatever reason, then surely the best place for her to end her days is surrounded by a loving family. These "earlier" deaths through lack of meds, accident or even starvation will happen. The only question is the level of compassion shown by those around them.

Keeping people alive at all costs sometimes is moral bankruptcy. My father in law had advanced dementia. Although he
had little pain and very little if any self-awareness, when he got to the point of needing invasive hospital treatment to keep him alive, his wife and daughter asked that he be allowed to die naturally. His son, who could not accept his impending death because he could never cope with the reality of his personality whilst he still had one, insisted that he was kept on life-support at major expense (and opportunity cost to other needy patients) for more than a month before he died anyway.

The same son insisted on his widowed mother coming to stay with him for Christmas, driving 200 miles to collect her, despite our protestations that she was too frail. Then he failed to notice how weak she was, pushed her too hard to be sociable, and
she collapsed on Christmas day. If we had not been there as well she would have died in her bed, but we called an ambulance. She died peacefully a week later.

Sometimes the moral thing to do is not to sustain medication.

You've selected an example that simply dodges the issue. Not sustaining medication to someone with dementia is a completely different issue than not hoarding medications for those that need it, assuming the hysteria around peak oil-induced meds shortages is correct.

If a medications shortage is indeed around the corner, as so many of the oracles around here seem to believe, then why not hoard the medications that sick children need to stay alive?

I still don't think anyone really believes these developments are imminent. I believe they enjoy the pronouncements of the blowhards because they seem to confirm that their rigidly catastrophist point-of-view is right.

Ah, so now by saving meds for children you've put the value of life onto a sliding scale. Children therefore are more worthy for saving and therefore more important. So on this scale would severely handicapped children be more or less deserving?

That was a rhetorical question before you get all uppity about it. Based on a book called "Causing Death and Saving Lives". Well worth a read.

You seem to be struggling with the concept of coming to terms with a situation. A lot of issues raised on TOD have no techincal fixes, only a need to be mentally prepared.

Better yet: How many of those who actually believe Greer's doomer glossolalia are now hoarding medications for their drug-dependents Grandmas? If not, why not?

My grandmothers are already dead but: Medications are on prescription. I can'tjust go to the drug store and by ten years of supply of the stuff. Secondly; if I could, they have an expiration date far shorter than that. 2 years or less is commonplace. Thirdly: I can not predict when the collapse will happen within an errorrange of 2 years.

There are very little room to play in this game.

In the US, at least, you can get an idea of how people would be affected by a diversion of resources away from medicine by looking at how funds are currently being spent.

About half of medical expenses are incurred during the last 18 months of life. So that implies that teminally ill people, mostly the old, would die about a year or so earlier than they do now.

Very little of the other half of expenditures are for acute care of illness or accident. Comparatively speaking, taking out an appendix or gallstones or setting a broken bone or sewing up a simple wound are simply not that expensive, even at current inflated prices. However, the patient on dialysis due to kidney failure or the auto accident quadriplegic require chronic, very expensive care. So people with expensive chronic illnesses and the severely injured would likely die. In fact, with a reduction in emergency services, more severely injured persons are likely to succumb on the spot. Without rapid response and intensive care expertise my friend would not have survived a severe stroke only to spend serveral months uncommunicative and immobilized and in intense anguish and pain before dying, a common and expensive current practice.

Lastly, another major chunk of expenses is incurred just after birth. Without extensive and expensive medical care, lots of premature and deformed babies would no longer survive. Some of these would not show up as increased deaths, because they would be declared dead before birth.

Another way of looking at it would be to consider the mortality impacts of going back to medical care as it existed 50 years ago. That level of medical care would be a small fraction of the cost of medical care in 2011.

I disagree, I think most fit and healthy individuals will survive the transition with some inconvenience. I think many people in America don't truly appreciate just how much slack they have in terms of loss of wealth, before people start dying.

You hear these U-Tube videos with people complaining about "Americas struggling middle class" but the GDP per capita in the US is $40,000, if a slight dent in thaty figure causes people to suddenly die in droves, then how do you fgure 90% of the rest of the world (who earn a fraction of that) manages to survive right now?

I think increased burocracy and regulation (health and safety etc.) and competition from China play a role aswell as oil.

Very good analysis. I have long complained about the lack of logic and over emphasis on numbers in energy analysis.

Energy analysis for some reason seems very susceptible to this. Grain analysts would never think of comparing things that are different, which energy analysts do all the time, such as with ethanol, conventional crude, tar sands, and natural gas. It would be like comparing, adding and subtracting from each other oats, soybeans and corn.

Nor would metal analysts ever compare iron, gold and copper. They would not add them together and think they have found new insight.
If they did they would be laughed at and it would be taken as a joke.

But when energy analysts do it, it is taken seriously.

The result is obfuscation, muddled thinking and bad policy decisions.

Energy is an abstract noun just like grain and metal. But for some reason, it is treated as concrete in analysis. This is the reification fallacy. I suspect it is purposeful obfuscation since there is money to be made if the stock market can be convinced that natural gas is equivalent to oil, for example.

And there is market share to be maintained if people can be convinced that the energy content is more important than the usefulness of a form of energy. Strangely this argument is applied selectively.

With electricity it doesn't matter and electrification of transport is even held up as a solution as in electric rail and autos.

But when it comes to ethanol, energy content is argued to be paramount over usefulness.

Energy analysis is so full of obfuscation IMO because there is big money and powerful business and national interests involved. We are talking about "to be or not to be" here. Energy unlike grain or metal is primary in exerting world influence in business and international relations.

The dollar is backed by oil since those who have dollars can buy the oil they need. They can buy grain and metal too, but they are not as fundamental to the needs of everyone. Some countries can get by with their own grain and metal plus a little imports.

But oil is used up and fast. Demand seems insatiable. Without adequate supply for transport, everything stops moving.

So the energy fallacies of comparing things that are different, comparing different forms to oil standards and regarding usefulness as irrelevant were created to maintain oil's primacy.

The trouble is that it makes moving away from oil very difficult. That is obviously the intent.

It means power and wealth to business and national interests who control oil. And they want to hold on to it. They will use any means necessary including obfuscation, lies and war to do it.

What's distressing is that EIA Washington data, for all practical purposes, is essentially of no use to the layman. This goes beyond even the points I've raised here. I've sat on the phone with money managers, and reporters, and others patiently guiding them through the morass of data. To put it mildly, you really need a strong motivation to get through it, understand it. And of course most can't even find it. This has raised a few questions for me, over the past 5 years:

1. Is it "right" that I have been able to market research susbcription material, largely based on my own slog through, and ability to make sense of, the data? In one sense, yes. But perhaps it would be better if we needed less translators for material that should frankly be more understandable.

2. Should I do something to help open up government data, like taking an interest in the work of Tim O'Reilly( Big Data, etc), writing "helpful" emails (Heh) to the EIA?

Well, I've done both of these and will try to do more.


Nota Bene: EIA just released in the last hour the latest International Petroleum Monthly report. It shows global production falling in October from 73.542 mbpd to 73.064 mbpd. But more to the point of our discussion, this is the last IPM report that EIA will produce. Starting with the next issue, the data will be "aggregated" into one of the EIA's DataBrowsers.

Notice: The Energy Information Administration is discontinuing the publication of the International Petroleum Monthly in its current format. The December, 2010 issue will be the last one to be available as a separate publication. Beginning with the January, 2011 issue, you may access the data in this report, as well as energy data for all fuels for over 200 countries, on our International Energy Statistics website . If you have any questions, please contact the National Energy Information Center at 202-586-8800 or

There appears to be an error in the data (check the end of the Drumbeat thread), but in any case it doesn't alter the fact that we are seeing a large cumulative shortfall between what we would have produced at the 2005 annual rate and what we actually produced from 2006 to 2010 inclusive.

Secrecy by complexity has been a very successful technique for reporting inflation and unemployment. Why not use it for oil production?

Very good point Micro.

Burying Fraud in Complexity became Standard Operating Procedure in the Mortgage Industry the past decade. Actually, it is SOP in the entire financial system (e.g. How many countries entered the EU courtesy of Goldman(Fraud)Sachs et. al. ???).

And FRAUD is now the main structural support of our current economy (i.e. it's legal to lie FASB 157, back-door bailouts hidden in the fine print the Fed desperately tries not to release to the public...the list goes on and on).

Our leaders have shown repeately that they have absolutely NO intention of being honest with us. It is that simple.

edit - The tragedy is that we no longer have time for the dozens of election cycles that would be necessary to remove the criminals (traitors?) embedded in our political system.

Here's to hoping for a non-violent revolution soon.

I took the time to watch the Jay Rosen lecture at the World Bank. OK, he was in the Lion's den and approached the subject of information exchange intelligently. I can not say that his Maxims were a great revelation to me but they do help to crystallize the mechanisms at work today.

The best part for me was to listen to him at the very end, right after a World Bank employee attempted to defend the authority and expertise of the World Bank (that's the way I understood her comments).

What Rosen did was to say that he is not impressed with today's "experts" who came out of the "best" universities and created the financial mess the world is in today. He told them that he was not impressed with the "professional" journalists who did nothing to try and stop this mess or the "experts" in regulatory agencies who did nothing to stop the "experts" brewing this mess. He said the something went awry. I suspect what he really want to say was this, "There is a lack of honesty in today's institutions and the "experts" working in them who should have been working to ensure that the system does not collapse." I seen no correcting mechanism on the horizon at this moment as the elites on that Mayan pyramid just don't see a need for it.

Yes, too bad there are too few Rosens in the world - they are outnumbered 1000-to-1.

That reminds me of Nigel Farage and "The Euro Game Is Up! Just who the hell do you think you are"' speech.

The ennemy of truth is of course confusing complexity...

Confusing complexity has become the standard operating procedure (SOP)in the area of finance and financial regulation and it is increasingly becoming SOP in the world of energy statistics.

Churchill once said that the truth is so important that it needs to be shielded by numerous veils of secrecy. He said that during a publicly acknowledged world war...

Given that the ends often justifies the means, we may be going through a period of human history that is comparable in importance to an unacknowledged global confrontation.

The remaining geopolitical titans are currently fighting for the remaining net energy reserves of the planet and unless a miracle happens (a new very high EROEI energy source soon becoming commercially available), it is likely to be a fight to the finish in a last man standing scenario.


Indeed. And when I wrote the first version of this post on my website, a number of readers who follow my work made that very same point: | Accordingly, I await the Tainter-described rapid simplification, which I regard almost as an inevitability.:-)


Secrecy by complexity has been a very successful technique for reporting inflation and unemployment.

Regarding inflation, the govt. does not include cost of energy and food. When I heard that some time ago I was aghast. They don't?!, I exclaimed. Like you say, maybe that form of secrecy will work for oil as well.

Regarding inflation, the govt. does not include cost of energy and food.

Where do you get that?

Food items and various fuels are mentioned here for the CPI market basket:

I'm not going to track it down but there are regularly disseminated inflation figures that do exclude food and fuel, and the if memory serves these are the monthly inflation figures most often quoted by mainstream media.

Your article confirms that I am on the right path to focus on crude oil on my web site which I update every month with the latest EIA data from here:

Latest crude oil graphs (incremental production relative to January 2001)

For example, this is the OPEC graph:

It is also good you mention the tar sands being included in the EIA definition of crude.

According to the IEA (International Energy Agency) WEO 2010 and also WEO 2008 actual crude oil production is in the order of 70 mb/d only

IEA World Energy Outlook 2010: Global crude oil production will never grow again

The inclusion of biofuels in IEA statistics is documented here:

IEA corrects oil statistics containing bio fuels

"According to the IEA (International Energy Agency) WEO 2010 and also WEO 2008 actual crude oil production is in the order of 70 mb/d only"

Can you make a chart of this?

Crude oil is the dark blue area, WEO 2008, from this article:

WEO 2008 can now be downloaded for free:

Thanks for this, Matt. I was hoping for something a bit more fine grained and up to date. I would like to be able to show people a clear, up-to-date graph that clearly indicates how conventional crude has peaked, and that we are now falling away from that peak/plateau.

I welcome this type of post because it highlkghts the ignorance of our so called leaders. Whilst NGL's might be considered as liquid fuels the use of them in transportation fuels is rather limited. The global population of vehicles using NGL,s is so low they barely register, and are never really likely to. Moreover NGL's are finding ever more use as chemical feedstocks (i.e. Saudia Arabia)

Meanwhile oil demand grows, especially in the far and middel east and Europe and North America apply belated energy conservation measures that have for a while offset the demand from the developing nations. But soon the crunch will really bite and fiddling of the figures will be exposed and probably result in another price spike as reality dawns, large.

This will result in a huge flow of capital from consuming nations to producing nations and trigger another financial crisis. The potential for political unrest looms large, along with uncontrolled migration.

Alongside we have the effects of depletion eating away at conventional oil, and the spectre of diminishing EROEI making every barrel produced and processed into finished product ever more costly.

A quick look at Aramco's annual buttletin 2009

is not exactly comforting. Along with the population of Saudi Arabia, the oil Saudi consumption is growing, rapidly. Moreover exports are static. Even worse there are near on 1 million b/d of crude oil which its not exported or processed. It is probably burned for power and water production.

I for one am not convinced of OPEC's true spare capacity.

Peak Oil exports are closer than peak oil.

GM compact crossovers, Chevrolet Equinox and GMC Terrain, increased sales by 110 percent

For people in UK not familiar with US vehicles

It has been argued that $90 barrel oil will cause terrible hardship in the USA, I got to say, when we read how sales of vehicles doing 22mpg are going up, we no longer believe you.

Perhaps no amount of information will change people only price will.

In the UK we pay equivelant $7.50 a US gallon, if we paid $3.00 a gallon, we might buy the sort of cars you do.

I just ran a check on UK petrol prices - using the price at the station by the office.
129.9 pence/litre = 7.67 USD per US gallon. More or less. My 8 year old car gets around 38 mpg (UK)/30.4 mpg (US) and I drive at 70mph most of the time (or possibly a little faster!). If I do buy a new one, it will have to be up over the 50 mpg (UK) mark.

Note to US readers: He will probably have a choice between 1 or 2 different models from most major manufacturers in his search for 50+mpg. This includes US based Ford, GM (Vauxhall/Opel) and Chrysler affiliate Fiat as well as major European brands like PSA (Puegot/Citroen) Renault and VW/Audi. Granted more than likely, most of them will be oil burners(diesels).

Alan from the islands

What they don't sell the Prius in Europe?

It doesn't sell as well as it does in the US (relatively), largely because of the existence of these significantly cheaper and almost as frugal alternatives. Most Prius drivers in Europe, as a result, are making a statement rather than effectively trying to reduce their carbon footprint.

Alan from the islands

I drive a Prius in the UK and the car sells well. It also competes well on a size basis with a diesel car. Not many diesels can touch it for economy. Our diesel Yaris does about 10% less in fuel consumption. The Prius does about 13 miles per litre winter and 14.5 miles per litre summer, based on fuel use records.

diesel Yaris

Any hope of these soon in the USA?

I must, of course deffer to your personal experience. My sister lives in London so my experience in th UK is limited to what I glean from my visits with her. Otherwise my main source of information is

I did some digging on autobloggreen and came up with the following two articles:

Germany's top 20 lowest CO2-emitting models
20 fuel sipping diesel SUV/CUV/crossovers available in Germany

The first reinforces my point, in that the Prius is 11th out of the 20, in terms of mpg and probably sells for quite a bit more than just about all of them.

The second article is interesting in that it highlights jaz's point that the mileage of the latest mid size SUV out of GM in the US is still relatively poor by European standards. ALL the models in the list do at least 33mpg (50% better).

A Google search brought up this more recent article from

Top ten most economical cars on sale

Finally an interesting tit-bit:

Passat BlueMotion enters record books after going 1,527 miles without refueling; that's 74.8 mpg

After completing the journey, the Volkswagen Passat clocked 1,526.63 miles, setting a Guinness World Record for the longest distance traveled by a production passenger car on a single tank of fuel; the 74.8 miles per gallon (U.S.) it got ain't too shabby either.

This in a car that is considered fairly large by European standards (similar in size to a Toyota Camry or Honda Accord). Even though the driving techniques used might be considered hypermiling, 74.8mpg in a car this size is downright amazing.

Alan from the islands

The first reinforces my point, in that the Prius is 11th out of the 20, in terms of mpg and probably sells for quite a bit more than just about all of them.

OK, sure vs a two seater vehicle the 5 seat prius is a monster big car in comparison. How many cars in that list even have 4 or 5 doors? (5th door being the hatchback)

When you said there were 1 or 2 cars per company were you thinking of 2 door vehicles or are you including them only because they were in the list at

Just so we are on the same page for terminology You are comparing

Microcar, Bubble car, "A-segment mini cars", Supermini and
Subcompact car, City car, "B-segment small cars" and
Compact car, Small family car, "C-segment medium cars", Small family car

versus the Prius which is on the border between that C segment and the D segment known as

Mid-size car, Large family car, "D-segment large cars", Large family car

Which by the way the Passat is in the same size classification as the Prius (both Mid Sized D Segment).

And even though it's very much so larger than many of those A and B segment cars it holds it's own coming in 7th in CO2 and 11th in MPG

I have nothing against A or B segment cars I just want to be sure you intended to make that comparison.

I'm not surprised that you can get a A or B segment car significantly cheaper than a C or D segment car.

I am surprised that people don't realize how big a Prius is compared to other cars that get good fuel economy.

and a Gen II Prius made 1,680 miles/tank (2,704.5 km Japanese Prius fuel tank has no bladder and can hold up to approx 15.9 US gallons, 60 liters) giving him over 100 MPG.

another Gen II Prius did 1,455.9 miles on 12.978 gallons of fuel for a grand total of 112.2 mpg!

Details include a total distance of 2,343.1 km (1,455.9 miles) on 49.13 L (12.978 gallons) at 47.69 km/L (112.2 mpg) actual from fillup to fill up. 49.1 km/L (115.5 mpg) was displayed on the Japanese Prius II’s FCD.

If all you want to see is record hypermiling you aren't going to win the stats by quoting the Passat in Guinness.

I spent some amount of time composing a reply To this but somehow didn't press save before navigating away from the page and losing it. The gist of my reply was that there is a cultural difference between the US and most of the rest of the world that results in a different perception of what a normal car is. I pointed out that in most old world settlements there are streets that would have difficulty accommodating a fairly normal full size US car like a Crown Victoria, while accommodating a normal size European car just fine.

I pointed out that design techniques in wide use outside of the US for decades have resulted in small, light fuel efficient cars that have surprisingly generous amounts of interior space and that the Prius benefited from these techniques. As a result, the Prius does not look larger than the average car in the city where I live. My views are heavily influenced by opinions put forward on autobloggreen which generally suggest that in Europe the Prius is an unremarkable car in a crowded field of reasonably fuel efficient cars. This is in contrast to the US where the Prius is the undisputed mileage champion, nothing even coming close.

I then suggested that we had gone way OT except for jaz's original point that obfuscation was leading American to nurture an unsustainable cultural preference for larger vehicles an leading to purchase decisions that might have been considered unwise if the truth were known.

Alan from the islands

Diesel is a much better alternative than a Prius and diesels are more available in Europe.

I beg to differ as we have both. I bought one diesel and petrol to hedge my bets. If every new car sold in Europe is diesel then we will have one hell of a problem. Already Europe is a net diesel importer and higher fuel prices will make the situation a lot worse. Thw ability to export the European gasoline surplus is also becoming more of a problem as the US blends more ethanol. Morevoer since January 1st Germany has moved to 10% ethanol in gasoline displacing yet more material from the gasoline pool. The effect has been no less than 7 refinery closures in the past 18 months and probaly more to come. The danger to Europe in the long term is that increasingly we will not only be reliant on imported crude oil but imported finished product. Still think diesel is best.
The Prius engine achieves its fuel economy by using the Atkinson cycle in which the power (expansion) stroke is longer than the compression stroke. Therefore comparing compression ratios is not exactly accurate between Otto and Atkinson cycles.

Also in UK we pay an annual car tax depending on what co2 the car emits, is there something similar in US. I think it does get people to think about the car they buy, but will need to be increased in the future.

you can see the cars £0 rated and those that pay the highest.

Perhaps no amount of information will change people only price will.

Maybe not even that. Continuing physical shortages will wake up the public.

NSW government acknowledges peak oil but continues business as usual regardless

Is there an Import Land Model that would help with analysing how international price and supply changes would affect the economies of Import Lands?

First, the amount of oil that an Import Land will buy is limited by the share of foreign exchange earnings/borrowings that the IL is willing to allocate to oil imports. This share may be fairly flexible if the foreign exchange earnings/borrowings are being used to import luxuries (e.g. iPods to the US) and fairly inflexible if the earnings/borrowings are being used to import essentials (e.g. rice to Bangladesh or wheat to Egypt).

An exception to the foreign exchange constraint is the US, which can create dollars and use the profits of seigniorage as part of its import budget.

Second, the ILM should account for the difference between internal prices and world prices. The internal price of oil-derived products may be higher due to high taxes (such as with most OECD countries) or lower due to government subsidies (such as with many developing countries). Due to these differences, a change in global prices will result in a smaller or greater percentage change in internal prices, unless the taxes or subsidies are varied, in which case the IL economy is sheltered from changes, but the government has to absorb a fiscal impact.

The impact of peak oil on Import Lands would appear to be significantly different depending on how they are positioned with respect to foreign exchange earnings and the fiscal soundness of their governments.

It has been argued that $90 barrel oil will cause terrible hardship in the USA, I got to say, when we read how sales of vehicles doing 22mpg are going up, we no longer believe you.

You're looking in the wrong place. The people who can afford new cars (even on credit) are not the people who are suffering hardship. They are completely different groups.

You might like to read the reports produced by two Citigroup analysts in 2006 that are linked from here.

Or google for "plutonomy", which is shorthand for the fact that the US has divided into two groups: one, the relatively rich, is doing all the consuming, while the other group is living on the minimum wage, food stamps, and charity. Some people's budgets are so tight that an extra $10 per week on gas will cause hardship.

I am simply looking at how current fuel prices are affecting the car buying choices of people.

These people obviously do not care about increasing fuel costs, nor where the imports come from.

I know several poor people and they cannot afford a car, they get buses or train to work, we know several people who cycle to work, it takes them about 40 minutes, one person journey is just over an hour.

This is why I argue for massive investment in public transport, it would enable people to do without cars.

The 'hardship' stuff is kinda funny... I just had a 'freegan' pizza today that 90% of the ingredients were gotten by picking up stuff that stores would otherwise throw out, or harvested in an urban environment. (Acorns, for instance).

It was better tasting than any pizza I've ever paid for.

Now, what this group does may not scale up well, but it convinced me that a doubling of gas prices would be a wonderful thing as it would force those that are currently 'on the edge' to actually change something substantial, instead of depending on minimum wage, food stamps, etc.

Now I'm seriously considering writing a business plan for edible grain crops that includes providing transportation from metro areas out to the farm for anyone willing to help hand-harvest. Agri-tourism, charity, and low-cost farm labor all rolled into one.

Acorns? Better check on those, down here in Texas they are well known to be toxic to cattle. Tried one once myself; bitter as could be.

Acorns were a staple for Native Americans, at least where there were Oaks. They leached out the tanins or whatever it is that makes them slightly inedible, then mashed up the result to make porridges and breads. Supposedly nourishing but a bit bland is the end result.

Geez. don't people have any skills these days? I have lots of oaks (black oak, tan oak and live oak) and make some acorn meal every year just for fun.

Here's how you do it: Collect your acorns (any kind of oak will work), shell them (you can whack them with a hammer or use a nut cracker), put the shelled nuts* in a blender (or food processor) with enough water to cover, whiz them until they are in fine pieces, empty them into a sprout jar with a screen on top (or you could decant the water when you rinse them), place in the refrigerator, each day for the next week, dump the old water out and put in new water, at the end of the week dump them onto a paper towel to dry them.

Your can grind it finer if you want flour. Acorns are a GREAT food source. You can make acorn mush or use it in baked goods.


*I suppose I have to say this; don't use moldy nuts.

I'll take acorns with tannins any day over commodity crops with glycophosphate residue. Have you tested your cereal to see how many PPM of roundup is present? ;)

(I think these guys processed the tannins out anyway.. Personally I'll let someone else glean for acorns. I've got enough trouble trying to figure out how to direct-market grain)

I'll take acorns with tannins any day over commodity crops with glycophosphate residue. Have you tested your cereal to see how many PPM of roundup is present? ;)

Before you start chowing down on a diet of acorns, you might want to consider more carefully the problem of Tannin Toxicity

Acorns are a well known problem in cattle breeding. The lethal dose is said to be around 6% of the animal's body weight. This is only an approximate figure since acorns from Red Oak were shown to contain on average two to four times the tannins than those from White Oak.

Some deer and moose were found to have perished due to ingesting acorns. Symptoms include ataxia and shortness of breath. Some animals, like squirrels and mule deer have developed the ability to consume high concentrations of tannins without ill effects.

Humans would usually find the bitter taste of foods containing high amounts of tannins unpalatable. (Some humans were found to be unable to taste bitter foods.) Tannins are leached from acorns before they are used for human consumption.

The lethal dose of glyphosate herbicide is about 3/4 of a cup. So don't drink a whole bottle of it. Or eat more than 6% of your weight in raw acorns.

As noted down the thread, I think that global net exports effectively peaked in 2005.

Note that BP shows Saudi internal oil consumption going from 2.0 mbpd in 2005 to 2.6 mbpd in 2009 (the EIA shows a slightly lower increase).

imo, we need more data, not less. the blind aggregation of energy sources is a problem, however.

'conventional' crude oil, measured volumetrically, is all over the map too. i sometimes wonder why the us and most of the world wants to measure oil by volume, instead of mass.

on the other hand, does your diesel engine care if the fuel came from conventional, gtl, bio-diesel or bitumen ?

and wrt crude oil, does anyone on here have a rough estimate or range of estimates of energy input/output for refining of crude oil ? in other words, how much energy is burned up in refining a barrel of say 35 deg API oil ? bitumen ?


I agree with you on the data and why on earth in the US volumetric units are used. In the main, in Europe, we use mass units and thank goodness to because it makes much better for comparison.

With respect to energy used in processing there is no really simple rule of thumb. In general the more complex the refinery ( Nelson Index) then the more energy it will consume. Likewise processing heavier crude will on balance require more energy.; more heating, more desulphurisation and more conversion. A loose rule of thumb would be to take the Nelson Index and multiply by around 0.7-1 as the % oil (energy) consumed during refining. It is a rough measure but generally the more complex refineries will run heavier crudes, and a Nelson Index of 14 (very complex) would probably burn about 10% of the oil a fuel, while a less complex refinery of NI 5 might burn 5% of oil as energy. Very much depends on the refinery configuration and product specs.

There is a more detailed article here

and here

There is no simple answer as refinery efficiencies vary widely. Energy per barrel would range from 300 - 600 MJ/barrel ( crude oil about 6.3 GJ per barrel). This might be of some help.

imo, we need more data, not less. the blind aggregation of energy sources is a problem, however./

Agreed. And let's consider how easy it would be for EIA Washington and IEA Paris to simply highlight oil supply in their annual forecasts. I mean, after all, it's still the primary energy source globally. (Though not for much longer.)


Good point about the decline in both gross and net energy content per "barrel" as sources like bituminous sands, ethanol and NGL's are added to supply figures to give the impression of a continuing plateau. One additional point I find interesting, though not directly related to the central topic, is the relationship between price and supply. As Gail pointed out in a recent post, supply optimists tend to assert that as prices increase, new supplies will become available, when there is not much evidence to support this assertion on relevant timescales. It may be true over longer periods of time, for instance the peaking of US oil supplies and OPEC embargoes and price shocks in the 1970's helped spur exploration in Alaska and the North Sea, but it took a decade or two before the full effect of the new production was seen on available supplies. In other words, due to the time lag of bringing new fields into production, the effect of price is not as pronounced as the optimists seem to believe.

There is a small effect in the short term (witness a slight bump in production for 2008, for instance) but the change in available supply is not even close to proportional to the change in price. Moreover, it's not at all clear that new exploration efforts motivated by rising prices will be successful, and it is far less likely if the net energy of exploration is declining. With the North Sea and North Slope we may have just lucked out, plain and simple.

The following post, in the Drumbeat thread, seems relevant:

I like to put the 2006 to 2009/2010 production/net export data in terms of cumulative shortfalls between what would have been produced/exported at the 2005 rate and what was actually produced/exported, because it puts the ongoing parlor game discussions of monthly production peaks in perspective.

In any case, here's an interesting metric--the cumulative shortfall between what would have been net exported to non-Chindia countries at the 2005 rate (40.8 mbpd) and what was actually net exported to non-Chindia countries. Following are the relevant data for 2005 to 2009. For 2010, I am assuming global net exports of 44 mbpd and Chinidia net imports of 8 mbpd, which puts non-Chindia net imports at about 36 mbpd. Note that net exports are calculated in terms of total petroleum liquids.

Based on the following data and on the above 2010 estimates, I estimate that the cumulative shortfall between what would have been net exported to non-Chindia countries at the 2005 rate and what was actually net exported to non-Chindia countries for 2006 to 2010 inclusive is on the order of five billion barrels of oil.

If we assume a 5% (0.5%/year) decline in exporting countries' production from 2005 to 2015, and if the exporting countries consumption continues to increase at the current rate, and if Chindia's current rate of increase in net oil imports continues out to 2015, then non-Chindia net imports are projected to be down to 27 mbpd in 2015, versus 40.8 mbpd in 2005.

Regarding Chindia's increase in net oil imports as a percentage of global net exports (from 11% in 2005 to 17% in 2009), we have the following news item:

Indian airline orders 180 aircraft from Airbus (apparently single largest commercial aircraft order in history):

Indian airline orders 180 aircraft from Airbus (apparently single largest commercial aircraft order in history):

That seems to jive with their long range forecasts and business plan, though quite frankly I really can't see how demand for airline services can possibly continue to grow in post peak oil world, even in India. I must be missing some crucial piece of the puzzle.

Figure 15: ICAO/GIACC Fleet Forecast 2006-2050

In its September 2009 Global Market Forecast, Airbus foresees average growth of 4.7% and demand for some 25,000 aircraft in the 20 years to 2028. They consider that this will be due to several factors including emerging economies, evolving airline networks, expansion of low cost carriers and the increasing number of mega-cities as well as traffic growth and the replacement of older less efficient aircraft with more eco-efficient airliners. Larger aircraft in all size categories will be required to help ease aircraft congestion and to accommodate growth on existing routes. It is interesting to note that they make no mention at all of peak oil in the entire forecast.
The forecast considers that 14,100 new passenger aircraft and 10,000 as replacement of older models will enter the market. 31% of this demand will be from airlines in the Asia-Pacific region, including the People's Republic of China and India. In addition, there will be a need for 850 new freighters. However, they consider that 2,600 older passenger aircraft will be converted to freight-only use. So only 7,400 aircraft (53%) from today's world fleet of 14,000 100-or-more seat passenger aircraft will be retired in the next 20 years.
Airbus predicts that by 2028, the average aircraft will be 26 per cent bigger than today, foreseeing demand for aircraft seating more than 400 passengers, like the A380, at above 1,700. More than 50 per cent of these will be operated by airlines in the Asia Pacific region. In addition, 2,010 intermediate twin aisles (350 to 400 seater) and 4,240 small twin-aisles (250 to 300 seater) will be produced.
The majority, almost 17,000 aircraft (68%), of the new aircraft will be single-aisle, 100-seat plus, the workhorse for low-fare airlines and increasingly demanded in Asia.

Source: Peak Oil Study State of the Art – WP3
Final Draft
(ASPO – The Association for the Study of Peak Oil and Gas)

It just seems to me that the airline manufacturers, the airline companies and the consumers of airline services are all living in some parallel fantasy reality universe. Do any of them seriously believe their own forecasts out into 2050?!

Cognitive Dissonance at work!

Alan from the islands

Hi Fred.
Many years ago I read a book about Boeing (can no longer remember the title.) The author's thesis was that the sale of airliners was an instrument of foreign policy and vital in areas of currency exchange and balance of payments, and that in some cases the price of airliners was structured to what the buyers could pay, as opposed to a fixed cost- that Boeing was concerned about the total volumes and cash flow, and that the government assisted in this undertaking, as Boeing provided a huge amount of foreign exchange- my memory says 50% in some years, but I read this a long time ago(probably in the eighties...My apologies to this author if I have misstated his ideas.)

I think some variation of this may be happening here. The EU certainly doesn't want to create the impression that the industrial capacity to build airliners is not growing, or that there may not be fuel to fly them (despite the fact that the German military seems to know.) Plane contracts run over decades, and frequently (always?) are filled with weaselly provisions; how many of these planes are firm and what are the cancellation costs? If we knew these things, I'm sure that we'd see this contract in a different light. This kind of deal is a bet on all kinds of things: airline demand, exchange rates, global economic health, and the continuing health of Airbus and the European economy.

In short, I think it's less about the actual planes than trying to show that everyone is supporting global trade flows, and that BAU is just fine. Indian Airlines is a government body, and Airbus is even more akin to a government subsidiary than Boeing is. This is essentially a political move, IMO.



This was an order by Indigo Airlines which is a private airline and completely different to Indian Airlines.

This was an order by Indigo Airlines which is a private airline and completely different to Indian Airlines.

And you're gonna let the facts interfere with a great theory?

But seriously...I still suspect some of these concepts have a bearing on the order, though without such a tidy bow on the package.


Great Point Fmagyar. I wondered at the $28 million expansion of our tiny airport this year as well and the most egregious example is the US Military tanker order totaling hundreds of billions. Where are they going to find the oil to put in those air to air tankers? Oh sorry. Stupid me. Iraq. Using the existing tankers patching them up as necessary would be far more cost effective . In another 10 or 20 years, you wont need very many tankers anyway.

I imagine Indigo have looked at the transition from rail to cheap flights in Europe, particularly eastern Europe, and decided to get enough planes to be Easyjet on the scale of the subcontinent ... 180 planes is almost exactly the current count of Easyjet's planes.

Aviation is a really high-value use of oil products: you can run trains on nuclear power, you can substitute a lot of car journeys with trains in somewhere as densely populated and well-reticulated as India, but aviation offers desirable things that are otherwise unattainable.

"NGL’s contain only 65% of the BTU of oil"

Is it possible to convert the IEA charts projecting the future to show future liquids supply based on net energy per barrel?

But Gregor, didn't you read this article

There is nothing to worry about.....(sneer sneer sneer).


That's a "nice" piece of obfuscation... applying US reporting standards to the rest of the world, hopping between reserves and resource frequently to blur the ideas in people's minds, and eliding issues such as the incredible (literally: "not believable") series of repeated coincidences in which OPEC reserve growth only occcurred at politically convenient times and in politically convenient increments.

The report is schizophrenic about OPEC national oil companies. On the one hand they are able to use the latest technologies at will, so their reserve growth is warranted; on the other, they can't be bothered to explore for new fields. (There are undiscovered elephants just waiting for someone to go out and look for them, apparently.) The truth is nothing like that.

The implication of figure 3, that nearly all reserve growth happens in the first 30 years of a field's life, is not put into the global context. Of course Texas and the North Sea are never mentioned.

The report is also anti-economic. Economics is based on methodological individualism - the idea that the aggregate is the outcome of individual behaviours. Saying that 'we can grow the global availability of oil while depleting every field' runs counter to that position. Since the report was written by a professed economist (albeit one with a powerful belief in Technological Fairy Dust) this is strange.

Having 'demolished' the Peak Oil argument, the report fails to provide the 'correct' explanation for the inelasticity of oil supply - the failure of supply to increase in the face of a doubling in price over several years. The correct one, or any explanation: not there.

Most importantly, the report completely omits any discussion of net energy or of producers' own consumption (Export Land), both of which are key parts of any 'assurance of supply.'

This kind of thing is really quite unhelpful. Whatever the author's beliefs, the greater good would be better served by his emphasizing the risks of trying to exploit uncomventional oil, and analyzing the possibilities for substitution away from oil.

The big problem with the two big reports recently (the IEA and the DOE) was not aggregating the data; but instead they made bad projections. The IEA assumed a huge amount of oil would be discovered--something there is no justification for considering the declining rate of new discoveries. The DOE report assumed natural gas producers will sell natural gas very cheaply, yet shale gas is more expensive to produce than these prices they came up with. On a long term basis natural gas producers are not going to lose money.

I think it is natural that agencies tweak their numbers through accounting tricks and new definitions in order to avoid painful disclosures. A big example of this is US inflation and employment stats. In the economics arena, several websites (such as sprang up to correct misleading government data. Many people in the general public pay even closer attention once they see that data is being manipulated. For example when the govt stopped publishing M3 currency data, you saw a huge surge in interest about currency inflation.
I wonder how difficult it would be to provide adjusted liquid fuel graphs by subtracting out the average liquid fuel inputs of high EROI fuels like ethanol and tar sand derived oil. Also adjusting for the lower energy content of liquid fuels like ehtanol & natural gas condensate. But then again, perhaps it is a moot point. Anyone studying this issue can see what is happening at the moment.

high EROI fuels like ethanol and tar sand derived oil

You meant low EROI... right?

And I as well would love to see the graph you suggest showing NET total liquids...

Let me put aside my PO-fanboy hat (with bells!) for moment and point out that the first graph showing North Sea Crude Oil Production 2008-2010 is just a bit dishonest, especially with the comment about "20% drop in just 24 months". I mean full marks for effort in making a point but:

First of all the time period is nicely fitted for maximum difference and anyone can see that there are very large ups (two rapid 10% climbs) and downs (very rapid 15% fall at the end). And I don't have to dig out my statistics ABC to tell you about trend-lines and variability.

Rather I would be more interested to hear how such rapid changes have occurred in practice: rig or pipeline shutdowns for maintenance or accidents (as is the case currently according to news)? Or actual flow problems downhole? Data like rig activity, watercut etc.

- Ransu

The EIA shows C+C average production at 3.3 mbpd for 2010 (through 9/10), versus 3.9 mbpd in 2008, which would be a 15% decline in two years (8.3%/year), versus a 1999 to 2009 decline rate of 4.8%/year (1999 peak was 5.9 mbpd). The overall decline rate, from 1999 to 2010, is now about 5.3%/year.

Incidentally, just the two year decline in North Sea production (around 600,000 bpd) is going to be close to twice what BP shows for the 10 year increase in Canadian net oil exports, from 1999 to 2009.

I'm very interested in the issue you raise, and you'll be equally interested to know that particular chart and timeframe came up as an issue, in the editorial process this week. I am vexed by both scaling and timeframes when making charts in general because a 2 year chart will of course not include the information of 10 year chart. However, a 10 year chart may dampen notable turns only revealed in shorter timeframes. FWIW, I start all my charts at calendar year(s) and I believe every chart can be deemed dishonest. That's my experience, in reader reaction(s). In other words, as someone once said: "If an artist is vain and he signs his name boldly to a painting, then it's an act of vanity. But if an artist is not vain, and he signs his name boldly to a painting, then it's not an act of vanity." :-)

Since the issue of intention is raised, I include here a longer timeframe chart of the same region for review. Do you think it possible that the two year chart, original to the post, may actually understate rather than overstate the problem?

My intent was specific: to show recent declines, from the North Sea. To that end, I think the two year chart tells a story worth knowing.

First of all the time period is nicely fitted for maximum difference and anyone can see that there are very large ups (two rapid 10% climbs) and downs (very rapid 15% fall at the end).?

As you can see, this particular region is marked by such volatility. So, what would be your solution to chart such a region, with that characteristic?


In this particular case, I think I like the longer time period, which shows the trend somewhat better amidst all the noise and the annual cycle. It does not appear to hide any significant detail.

Agreed, it shows both the peaks and the troughs declining very clearly. Is it my imagination but are the troughs declining faster than the peaks?


North Sea production goes through an annual cycle with lower output in Summer and Autumn owing to maintenance shut downs. The statement of 20% drop in 24 months is fairly accurate reflecting roughly 9% per annum decline. As Gregor points out, the chart starts on a calendar year (high winter production) and ends in autumn, which is maintenance affected.

Another region in Non-OPEC that has disappointed is Canada. While Canadian oil production soared coming into the last decade, its production halted starting in 2006 and since then has oscillated around 2.6 mbpd. There is much hope for future increases from Canada and there is even a kind of mini-myth taking place in the US right now that Canada will be a strong source of future supply to the US. However, what has happened in Canada the past decade is that cheap conventional barrels of oil have been replaced with expensive tar sands barrels of oil.

There was a bit of a blip in the mid-2000's as the oil companies drilled up their East Coast offshore prospects to take advantage of rising prices. However these Canadian offshore fields are much like those in the North Sea and GOM - they rise to a sharp peak and then decline very rapidly. We're now in the decline phase of those big offshore fields, and while the companies are going to drill up the satellite fields ASAP to take advantage of increased prices, those fields will also show a steep decline as well. So, you will see a bit of a double bump in the offshore production curve. And after that it's over. There are no more East Coast offshore fields big enough to make any difference.

I don't think Canadian offshore oil is any cheaper than oil sands. Some of the wells they are drilling off the East Coast of Canada are twice as deep the BP well that blew out in the GOM, and the technical aspects of producing oil in "iceberg alley" make operating in a hurricane zone seem positively benign. At least the GOM production platforms don't have to pull up their anchors and run for safety when an iceberg the size of Manhattan comes bearing down on them. And the East Coast of Canada sometimes has hurricanes, too.

Oil sands prospects are completely different though. They rise very slowly and then level off at a constant production rate for decades. Only about 28% of Canadian production is conventional light and medium oil now. The rest ranges from heavy oil to bitumen. There is more syncrude being produced than light and medium crude, and a great deal more crude bitumen is being exported to crude-short US refineries.

This is the Canadian Association of Petroleum Producers 2010-2025 Canadian Crude Oil Forecast and Market Outlook

The reason trickery is used in these "projections" is to reassure the "motoring public" together with those who desire to soon be among them, as well as the manufacturers of cars and airplanes, that NO PARADIGM SHIFT in terms of how people are transported (or transport themselves) will be necessary, and therefore would not be a topic worthy of discussion.

Instead, the message conveyed is that only INCREMENTALIST measures are necessary to solve the problem--that smaller and slightly more efficient cars, or larger and slightly more efficient airplanes, or increasing biofuels production, will ultimately be enough, at least within the economic horizon that can be perceived by the average citizen.

Meanwhile, what is NOT reported very much, is that the "middle class" that would be capable of either purchasing the devices of current system worldwide, or purchasing access to them, is currently in a period of exponential growth, and will soon outstrip the capacity of the planet to supply the fuel for their "dream machines".

Does the "motoring public" pay attention or even know about these projections by either the EIA or the IEA? The only thing they pay attention to is the price of gasoline at the pump, if that. The gas price will reflect the relevant data even if that differs with the published data. Those here, who I am sure are much more sophisticated than the so called motoring public can see through this nonsense, so what is the harm?

Having said that, both agencies should make an attempt to be scrupulously honest about what they are reporting.

Of course, to the "motoring public", no news is good news, which is exactly the message that these reports, guided by the omnipresent hand of Big-Oil, want to convey.

Move along folks--nothing to see here!

Had the reports been more honest, showing certain and significant shortages within 3-5 years, and the main-stream media diligent in reporting such, do you not think that would give the "motoring public" pause, even to the extent of being a "wake-up call" to them?

Instead, the message conveyed is that only INCREMENTALIST measures are necessary to solve the problem

Did a huge long post below but if its not read I'd like to say that incremental solutions seem to have actually worked.
They where for a while the right answer and did really and honestly work. Eventually as I think you see they do fail.
However that does not mean that they where unsuccessful indeed depending on what you think the magnitude of the problem
is they worked for years as far as I can tell.

I think the real underlying problem with incremental solutions is fairly simple. A new incremental solution is expanded when the underlying problem to be solved is changing slowly. I.e everything went from being ok to having a problem but a fairly small problem.
The incremental solution of course starts from zero and enters its growth phase. Either linear or exponential depending on the details.

If one assumes that the underlying problem is decaying say exponentially and that the incremental solution peaks fast i.e even if its exponentially growing its a much smaller curve in magnitude well you hit a point were your problem that was incrementally solved gets bad fast.

Only in the case where the incremental solution is able to scale or grow as fast as the underlying problem to you get a real long term substitution effect. Its like patching a hole. Perhaps the hole starts off small and the patches work but if the hole is growing faster than you can grow the size of your patch you eventually left with a big hole and the now much smaller patch has little effect.

You can see however how at first the incremental solution works wonders and looks fantastic and everyone is happy and you don't have any real problems. Mission accomplished.

This is why I think partial substitution esp using substitutes that simply don't scale fast enough is so frigging dangerous vs true scalable substitution. I think economist make a huge mistake in assuming that any substitute can inherently scale to be a full real substitute. This false incremental substitution that turns out to be finite and unable to fill the growing void is a real and serious problem indeed eventually overtime I argue you reach a point where the partial substitution had practically no long term effect. It just as well have not been applied.

At that point the only solution is to shrink the problem until partial substitutions become valid substitutes. This cannot be done by scaling up the partial substitute by definition therefore your literally forced to scale down the size of the problem till they are again effective.

For energy then it means our overall energy usage will simply be forced down until biofuels and unconventional oil are adequate substitutes. As far as I can tell this means that overall consumption will probably fall by 50-70% before we reach equilibrium.
Remember that regardless of how demand changes the substitutes have to fill and ever larger hole. Not only does the demand have to get substantially smaller but the rate of growth of the hole has to decline dramatically i.e it has to go close to zero to allow cover.

This suggest that at some point in time whats likely to happen is our existing oil fields will simply not be produced at capacity indeed we will intentionally cut back production well below peak productive capacity. I think the hole will not only be filled over the short term but production will be cut back to ensure that plenty of productive capacity exists well into the future even if no new resources are found.

Obviously this means oil will no longer be fungible instead it will become a rationed controlled resource used to meet the critical needs of those that control it. Former oil users will simply be forced to make do with what alternatives they have.

I think this is actually the real problem with failed incremental solutions since once its clear that they have failed you really don't have any possible choice but to eliminate the hole. I think your forced into a draconian response soon after its clear that the patches are simply too small. Everyone will I suspect figure this out on their own fairly quickly. And of course it ties nicely into some of my other musings about how controlling the remaining worlds oil supply makes you effectively king of the world.

So it seems to me that a violent swing happens quickly once the incremental solutions fail indeed it swings well past probable stable points to another extreme.

Its not really rationing its more like a siege as the system swings violently to simply not producing oil the aim is to decimate demand from those that don't control the resource. Its extreme hoarding to kill your opponents off.

Indeed your willing to starve your own citizens to ensure your soldiers have enough food to effectively mount their siege against the enemy. Its really a to front war.

If I'm right then failed incremental solutions are and incredibly dangerous problem unless of course your one of the lucky few as the lead to a stunning over reaction and extreme solution.


Another side effect of an incremental solution is that when it is first applied it also brings hope. That hope is crushed when the solution proves ineffective, so the next round of solutions is greeted with less hope.

Once you've killed any chance of hope within your population, you've lost the power to govern. All you can do at that point is to rule by force.

Without hope, you can't bring the population with you to enact the next round of solutions.

More simply put, the aggregate of liquid fuels described by the EIA are not fungible in terms of price, utility or energy return. To weight them all equally, without regard to use, cost or energy return is simply disingenuous.

At last we are discussing obfuscation !

Perhaps eventually outright fraud :)

I now think that the best way to get a good handle on crude oil i.e the real stuff not NGL's and also not leas condensate is to focus on distillate. The reason to eliminate Condensate from C&C is fairly simple condensates are available from wet natural gas wells and yes even oil natural gas wells this masks the underlying situation with crude i.e the stuff used to make distillates.
Removing condensates is critical to disambiguating oil production from NG production. Yes you do get some oil from primarily gas fields but the amounts are small enough that they don't cause a major problem while lease condensate from wet gas fields is and important number.

All the obfuscation in the world is not going to change the amount of distillates produced in the world. Once you reduce the problem to distillates one need only subtract biodiesel production.

Biodiesel has grown substantially and its certainly now worth considering.

The key concern is not total liquids and not even ngls or condensate its crude oil and how our crude oil supplies are changing.
By sharpening the focus on distillates and accounting for biodiesel production the real picture of crude production should emerge.

There is certainly more to the story about distillates. Syncrude process upgrading heavy crudes can result in high distillate yields.
The widespread move to complex refining can produce substantially more distillates per barrel. Indeed in many parts of the world the refineries are designed with the knob if you will permanently turned all the way to distillates.

My point is our modern complex refining methods can substantially improve distillate production per barrel of oil and we have every indication that this has been the goal. And of course fuel economy for diesels has not been static but has improved. Given most diesels are used for commerce fuel usage is important.

I'm sure the answer is of course mixed however if you take the time to look deeply into the issue I think you will be surprised at just how far crude oil production could have fallen.

If one simply assumes that the high prices for crude has resulted in static to falling demand for distillates then take into account the changes in upstream refining you can get a surprisingly big number.

If one takes further steps and removes unconventional oil production. Canadian oil sands, deep water, and some of the very tight production that uses advanced fracking to produce along with some fields with very marginal oil high in vanadium or sulfur or other impurities you get and even better picture of core production.

Although these fields certainly produce oil that can be used to make distillates they have been known for a very long time. Production from these fields represents significant and expensive technical hurdles. They are not being produced because they where recently discovered but produced because we simply don't have alternatives.

Once you consider all of this you finally have reduced the problem down to our core oil production that has been providing the bulk of the worlds oil for decades. A lot of it from large fields the rest from smaller fields that are rapidly depleted and have to be replaced often in less than a decade with new discoveries.

These are the fields that ran the world decade after decade providing it with cheap plentiful oil.

Thus once you finally focus down on the real key issue which is the production from the old fields and rate we add discover smaller fields we can get a picture of how our core production has changed.

All the obfuscation using all liquids, unconventional production move to biofuels its all driven by how our core oil production has changed with time.

Once this is taken into account one need only ask a very simple question.

Are these aggressive moves to produce more distillates per barrel a result of rising demand or falling production ?

With all these various secondary issues removed one need only consider various demand curves for distillate. Given the rising prices a flat to falling demand curve as conversation kicks in make sense as a baseline.

The answer does take a bit of work to calculate but our core field production could have easily fallen by millions of barrels a day.
Indeed hidden in plain site as Nate puts it is a very large number its the peaking and substantial decline of our core crude production. Its exact value depends of course on how demand has changed but I argue no matter how you calculate it its gone down by a real and significant amount.

Indeed once one gets to the heart of the matter some further investigation can give you and even better grasp of the situation.
Obviously even with the above we certainly added some new fields which are correctly classified as real honest conventional crude.
Next with the rising prices one has to imagine that infield development and redevelopment to maintain production has been intense.

Both of these offset falling production. Removing them is not correct from the perspective of the overall oil supply however it does allow you to focus on what the underlying decline rate might be. Exactly what is the problem thats being offset by a few new fields being brought on line and infield drilling. This is important because for the most part infield drilling is simply depleting these reservoirs faster and with the very high prices for crude and our advanced technology many of the recently developed fields will probably have a short lifetime. Again that not to say they don't offset intrinsic production issues but all they do is offset them.
Indeed aggressive infield drilling using advanced methods is very likely to simply make the problem worse later.

Throw this into the equation and clearly our core oil production is facing some real and serious issues and indeed has been for some time. This is the heart and soul if you will of peak oil all the other stuff simply mitigates this core problem.

Thus the "real" peak oil it seems has probably been and issue for some time. Long enough to suspect that perhaps just perhaps we are not just facing obfuscation of the oil production data but perhaps outright fraud. Its doubtful if such and assertion can ever be proven however if you come up with anything close to what I have concerning conventional production well then its hard to believe that the numbers are probably not being inflated. My only question is how much ?

Indeed the layers of obfuscation and real moves to alternatives at enormous expense and increased complexity suggest that the core field production probably is not what people claim. Why do all the things we have done if under the covers we don't have a serious problem ?

Of course your free to ascribe these issues to rising demand from China and India and internal demand in producing countries of course as WT has shown even this results in a serious export land problem. Indeed this should be considered its important.

However don't make the mistake of looking at how the pie is being sliced up and make assumptions about the size of the pie.
We can easily be changing how we slice and ever smaller pie. Assuming that the pie is a certain size simply because someone is taking a larger slice is wrong. At the very least price should suggest that its not just how we are slicing a pie thats not changed much in size.

Finally after you have done all of this you realize that its actually possible for us to have a deep crisis in distillate supplies.
All the offsetting and obfuscation seems to simply be hiding a rapidly approaching crisis in distillates that I call the distillate wall. Real alternatives like the Canadian oil sands work at first however the complexity ensures that the rate of growth slows dramatically. The same of course applies to biofuels. Refinery optimizations work at first but once the knob is turned all the way to 100% you cannot turn it easily to 110%. All this increase in complexity and even obfuscation did was simply delay matters for a bit.
Same of course for the deep recession and in field drilling etc.

If I'm correct and our core oil fields are undergoing steep declines then nothing can eventually offset this. They are simply to large a percentage of our overall production. To big to save :)

So if I've done everything reasonably correct well we are going to hit a serious shortage in distillates which will rock all our core industries indeed the very foundations of our economy. How joe6pk gets to work each morning from suburbia is the least of our problems. Indeed I think we did hit this wall in 2008 the recession only served to delay matters. And finally last but not least if my sharkfin concept is correct well the declines in our core oil fields has actually rapidly accelerated. The 2008 price spike was primarily us hitting the distillate wall for the first time. It occurs over a small change in core crude production that can no longer be offset. The actual change is small its a wall not because of the absolute change in production but because the change happens and cannot be offset. Of course we are going to hit this again soon it looks like. However as I said I don't think the decline of the core oil fields has been steady instead I think its rapidly accelerating we are now finally reaching the point that years of advances in drilling technology have caught up with us and the depletion forces production rapidly downwards or the back side of my shark fin curve.

If so its interesting that such a change happened to coincide with the deepest recession in history indeed probably the onset of a depression. However its starting to look like even this failed to offset what looks to be a rapidly accelerating decline in our core fields. Not only are we going to blow through my distillate wall again it seems its highly probable we will also encounter something new which is and absolute unquestionable shortage of oil with no way to offset it. Someone is simply not going to get a slice of pie.

At least inintially, rationing of distillates will be by price. I am not convinced that the Chinese can outbid the U.S. for oil and its products, because China is in a real estate bubble that is bursting now. I think this bursting of the Chinese real-estate bubble will lead to a recession in China and a reduced demand for oil imports.

U.S. consumers are relative to the rest of the world high income consumers. Thus, I think the U.S. will be able to afford $90 oil (and $150 oil, when it gets there) better than most other countries, certainly better than China, which is a low-income country.

I do think that $90 oil will tend to drive the U.S. into recession, and I do not believe the consensus of economists who predict 3% to 4% real growth in U.S. GDP for 2011.

Any extra oil that can be produced (Canadian oil sands, very deep water off Brazil, Arctic, etc.) will be high cost oil. We might be able to sustain current oil production for five more years, but it would require a price of somewhere around $150 a barrel to sustain this oil plateau. Because the U.S. and other countries go into recession before oil prices rise to $150 per barrel, I think the likely course of events will see global crude + condensate production declining in the years to come; we've stayed on a bumpy plateau about as long as we can.

"U.S. will be able to afford $90 oil (and $150 oil, when it gets there) better than most other countries, certainly better than China, which is a low-income country"

That seems like common sense. But what about the argument that many in China are getting far more utility out of their use of oil, so they are willing to pay much more for it. If you are the first one in your village to have a scooter, you can make all sorts of deliveries much faster than everyone else, so you have a huge advantage and will pay a lot for said advantage. The tenth guy to get a scooter in the village, maybe not quite so much (depending on the size of the village). But in America, there are few situations like this. Every one has a car or access to one through friends or relatives already.

It is probably true that the marginal Chinese consumer gets more extra utility from an additional gallon of gasoline or diesel than does the marginal U.S. consumer. Thus the Chinese consumer is willing to pay more than an American consumer for that additional gallon. However, I think the ABILITY to pay for the marginal gallon of gasoline favors U.S. citizens, who (on the average) have much higher incomes than do the Chinese consumers.

Note that the demand curve is a combination of willingness and ability to pay for a product over a range of prices. Huge willingness combined with low ability to pay results in a low demand curve.

Thanks for clearly articulating what I had a vague sense was off with that argument.

Of course things may change. Americans' ability to pay more for gas (and other things) has been largely dependent on access to credit--it was certainly not due to our wondrous ability to save! That access to credit is drying up.

Many Chinese, on the other hand, do have substantial savings available to throw at whatever they think is worth investing in.

There just seem to be too many moving parts here for me to make predictions that I can have any confidence in.

Utility is multi dimensional.
Using a gallon of oil to go for a Sunday afternoon ride to look at the pretty fall leaves generates utility but is very different from using a gallon of oil to run a machine which makes widgets which can be sold.
The former adds to the total number of utils but not to GDP whereas the latter does add to both utils as well as GDP.
The utils which have GDP associated with them can be used to buy more oil whereas the utils without GDP do not buy any oil.
As Chinese GDP comes about 45% from industry/construction (things which can be sold) and US generates about 13% from industry/construction it would stand to reason that it is likely that China can actually outbid the US for the marginal bbl of oil.


Thanks for chiming in with some handy stats. Is 'util' your own abbreviation, or is it a term for a unit used in economics? If the later, does it have a clear definition?

Thanks for the links. The second one says, "The units to which we assign an “amount” of utility, therefore, are arbitrary"

I'm not sure how much utility there is in a measure that is arbitrary, and as it sounds, rather subjective and ultimately (as the first link points out) circular in definition '-)

I am not sure what your "industry" encompasses, but you can sell things are are not physical goods. Movies, music, art, designs -- all forms of intellectual property, often very valuable, but often has the problem that they are very susceptible to piracy (unpaid use/copying). It's something to keep in mind; an awful lot of consumption (how much, I do not know) is of these non-physical products.

Good point.'s_Republic_of_China

I guess that the best way to look at it is by looking at (oil) consumption at the final consumer point vs used in intermediate processes. A car driving to go to look at fall leaves generates no GDP but that same car making pizza deliveries does generate GDP.



Average income is meaningless, in every country there are rich and poor and the rich in China will be able to outbid the poor in America, hands down.

I have read that the top 20% of Chinese own half of wealth and over 80% of bank savings.

So 140 million Chinese are very rich and another 140 million are very well off.

A population almost that of the States, that explains why car sales in China were 13 million last year.

It is not correct that there are 140 million rich Chinese. Of those who have an income above the median U.S. income there are not many--a few million at most. Wealth in China is at least as concentrated as that in the U.S., though I do not know if data exists to support that statement. My hunch, based only on anecdotal evidence, is that wealth in China is much more highly concentrated than is wealth in the U.S. Also the income distribution in China is highly lobsided, with a very few getting very high incomes, the middle classes getting about as much as the poorest in the U.S., and more than half the population living at a bare substistance level. China is still a poor country, despite a few million Chinese having achieved prosperity.

The Chinese, though, seem to be implementing strategies that would confine the use of gasoline and diesel to the most price-insensitive parts of their economies. They are putting in high-speed train lines everywhere, they are electrifying their freight railway lines, and they are planning to build about 250 nuclear reactors. The same is not true of the US.

So the Chinese people will have alternatives available when fuel prices skyrocket, whereas Americans will not. In China, only the richest will drive gas guzzling SUVs, and they will be able to afford to do so regardless of circumstances. The middle class will take the trains or bicycle to work, just like they do now, and leave their small, fuel-efficient cars parked except for special occasions.

The same is not true of the US, where the average middle-class family is locked into using their vehicle to get everywhere, and for some reason they insist on driving gas-guzzling SUVs. Is the average lower middle-class American family going to be able to outbid the average Chinese millionaire for expensive fuel? Probably not.

No, of course the average middle-class American household cannot outbid Chinese millionaires--but how many millionaires are there in China? I don't have numbers to answer this question, and I suspect reliable numbers on income distribution in China do not exist. In any case, the very wealthy do not account for a great deal of oil consumption in either country.

Much diesel and some gasoline in China has gone into the construction industry--which was financed with greater leverage in China than was the case in the speculative frenzy of building residential and commercial buildings in the U.S. When the crash comes in China--and I think it will be this year--it is going to be a humongous crash and will probably be much worse than the real estate crash in the U.S. has been. It will be extremely deflationary for China, and probably will cause their real GDP growth to go negative. I do not think the Chinese can export enough more to make up for the coming slide in construction spending.

My guess is that recession in China will be the #1 economic story of 2011.

Many, though not all, of these SUVs were bought during the 2000-2008 boom.

Evaporation of money means it still makes more sense to pay off an existing car than buy a new, more efficient one, even with higher oil prices.

There's the rub!

Fuel efficient cars are no solution either, they merely delay the day of reckoning.

I'm not defending Americans, just reporting from on the ground. People are poor now - it's true. The only thing they care about is holding a job and getting just enough fiat money for the next meal and gas tank. They have no money for a new car, much less a house, much less saving money and building wealth.

I would guess a majority of new mortgages in America will never be paid off.

I see and hear this with my own eyes and ears, every single day. Don't believe a word uttered by Bernanke or the media or those who think America is a rich, thriving place.

Canadians, though, the suckers that they are, are convinced that overpriced McMansions and expensive cars are "wealth." They will soon learn otherwise.

I'd still much rather be in say, B.C. or Alberta than anywhere in the U.S.

Well I'm not convinced that the Chinese have out bid us for oil as claimed. I think that argument is simplistic. I do agree that their oil imports have increased steadily but does that mean we have been outbid ?

If we had a real deep pocketed bidding war well it was in 2008 who one the war ? Hard to say really since we had a global financial crash.

Certainly US consumption probably declined as price rose but where we really out bid or did we have enough gratuitous uses of oil that could be eliminated. What role did the popping housing bubble play in our oil consumption. Housing started going down well before oil peaked in price in most areas the peak was in 2005 for price.

For the housing industry new housing starts are probably a better indicator of how housing contributed to oil use.

And also HELOC's in the form of new cars for the kids vacations RV's and various gasoline powered boy toys.

This data is California only I can find the US data but the peak is and most of the loans are determined by California.

My point is we clearly peaked in housing and probably overall economically well before we where bidding for the highest oil prices.

By definition to peak the system had to have been slowing earlier in other words the housing bubble was already running out of steam in 2004.

Certainly oil prices had increased significantly at that point by about 30% but with our historical perspective we know that they had a long way to go and we eventually paid much higher prices heck 90+ today.

Now thats not to say that high oil prices did not contribute to deflating the housing bubble I suspect that they are tightly interrelated. However I don't think one can claim we where losing a bidding war with china as we kept right on bidding higher and higher even as our economy declined.

Far more likely that our falling demand was being driven by our collapsing housing bubble both in terms of peopls suddenly conserving as housing wealth evaporated and falling demand for oil for construction. We where not losing some bidding war with china simply having and entangled recession started i.e both high oil prices and the housing bust where driving consumption in some complex way.

Later of course I agree a bidding war did seem to clearly break out in 2008. Who lost no telling we had a financial crash.

China certainly bounced back faster but we are at the end of a multi-decade housing bubble its final ending is probably a long ways off.
We bounced back much slower but understand we are recovering from a crash and our overall economy should continue to go downwards.
And of course oil prices rose again. Today we still are seeing robust US demand for oil even with high prices and even though we are probably still heading into a depression.

Thats not to say another real bidding war won't develop and not to say China might not outbid us however at the very least its a complex situation. The supply side is being obfuscated and made far more complex than it needs to be. On the demand side it is complex and simplistic bidding war arguments are not enough. They are certainly part of the situation and a factor but the demand side is intrinsically complex with a number of large factors at play.

Now as far as recession goes well I'd argue the US economy was already in decline by late 2005. I don't agree with the recession band if the economy was still showing growth well that has more to do with how we calculate GDP the real growth engine rising home prices hand ended at that point. It simply that our methods of calculating GDP did not fully capture and asset price driven economy.

If you go with that definition and include rising prices after the economic crash well oil prices have actually been rising most of the time that the economy has clearly not been growing robustly.

Clearly and economic crash that threatens to collapse our financial system puts a dent in oil prices and demand.
Thats a fact.

However over the long term outside of the crash period itself oil prices have been going up as the economy grew, up as the economy weakened and up as the economy slowly recovered.

Only and epic crash changed things and not for long. As long as we don't have another crash I'm not convinced at all that relative changes in economic activity either growth or recession are enough to have a big impact on prices. Heck the collapse of the housing industry had no real effect on oil prices and its a large fairly oil intensive industry. It impacted US usage sure but not enough to really change overall oil prices they continued upwards even as housing was clearly crashing.

In short outside of outright financial panics I don't think that relative changes in economy activity have had any real impact on prices up down or sideways. In short GDP changes possible with and intact system simply are not sufficient to cause enough of a change in consumption to effect prices. A big reason why it does not matter is GDP is based in dollars not the oil intensity or reasons for a particular dollar of profit or loss. A real-estate office going out of business and subtracting X amount of GDP is just the same as say a farmer going out of business and the land not being farmed. Even though the relative oil intensity of the two economic activities differ substantially. We don't have and energy weighted GDP its and amorphous aggregate. Indeed if anything it tends to favor FIRE type businesses which except for the construction component are relatively light oil users. Indeed for housing obviously the largest portion of the bubble was related to the sale of existing homes these are a much large percentage of the market. The cost in oil for the sale of and existing house is small although the GDP impact is large if the asset is in a bubble from how the financial gain is used.

Obviously a bursting Chinese real estate bubble will directly effect oil usage for building construction as this naturally slows but why should it be enough to alter overall demand sufficient to effect prices ? It clearly did not happen in the US.

Indeed attempting to equate GDP to oil usage is tenous at best. What of a worker at McDonald's that drives 20 miles to work vs a stock broker that drives ten. What if the situation changes say the Stock broker loses his job and gets a new one for substantially lower pay but now driving 30 miles ? What about someone that worked from home that lost their job and now they are driving around looking for work ? My point is fairly simple oil intensity has a lot more to do with how people use the infrastructure than the overall financial situation. All these use cases have different price sensitivities and the aggregate matters. At best early on in a recession when unemployment is initially climbing we have a correlation. However later as previously unemployed look for work and cash jobs for every person becoming unemployed some one on unemployment is probably increasing their oil usage it nets to something perhaps sightly negative but perhaps not again it all depends.

Indeed I'll be bold enough to suggest that simple demand changes are not whats driving oil prices at all. I don't think demand has much to do with it. Instead I'd argue its far more likely that underlying supply issues are whats driving oil prices. Lower supply and thus prices rise to force out some excess demand basically independent of economic activity as long as the economy is not in a panic.

Now to be clear the panic clearly crashed oil prices well below previous levels and almost certainly cause a sharp downturn in demand as a large number of people where laid off over a short period of time intensifying the real demand drop at the start of a recession.
Supposedly prices rebounded because OPEC sharply cut production well we can argue that one but at the minimum that tough to believe with so much oil stored offshore and US storage levels near all time highs and by all reports global storage brimming. The ability of OPEC to have influenced world oil prices as they claim is questionable. Far more likely is that at the height of the panic oil prices seriously overshot towards the bottom once it became clear that the world was not going to end the price quickly rose to balance supply and demand.

And to repeat a bit a real bidding war seemed to develop in early 2008 it was simply cut short by the panic I doubt we even came close to determining just who was going to really out bid who in the game. No one won the financial system was simply crashed.

Now I do think price is important but not because of any large changes in demand but because it indicates that a new bidding war is starting between wealthy nations. Slower price increases and the vestiges of the panic and sharp increase in unemployment is no longer stunting demand. Either this bidding war reaches and end with a clear victor or we have another financial crash that interrupts it.

I've written plenty on what I think was controlling prices following the crash I'm not going to repeat it suffice it to say those factors are no longer capable of limiting prices or keeping us from falling into another real bidding war.

Thus the overall price is driven by supply primarily falling supply pushes up prices and suppresses flexible demand exactly which demand is flexible depends on the details perhaps someone in the US bought a more fuel efficient car. Perhaps someone in Africa went without. Perhaps someone in China or India chose to not expand their truck fleet as rapidly because of rising fuel costs. Or flip all the countries around does not matter the demand suppressed by rising prices is a case by case issue. In some cases its a negative impact on GDP in some cases its not. Regardless its declining supply driving prices and forcing demand down not demand growing to rapidly for supply. And no particular country is outbid its individuals. Obviously the poorer the country the more likely it is for a particular country to exhibit and overall decline. Aslo clearly collective acts like many employers laying off many people at once can also impact demand out of proportion to the intrinsic wealth of the population.

Even the bidding war is itself really supply side the only reason it happens is way to many nations have more than enough money to buy oil if the supply results in these nations facing a deficit in oil to meet their demand well we see plenty of deep pocketed individuals and groups in these countries are more than capable of bidding oil prices up to ruinous levels. It does not result an any increase in supply simply because supply itself is probably falling. All that happened is falling supply has finally incited whats basically economic warfare. I don't think income perse matters simply because I don't think GDP matters all that matters is that financial capitol is well in excess of oil supply in to many countries. I don't think we even have a clue just how high prices can go in such a situation before something blows up. As you know I think the plug was pulled deliberately on the global economy in and attempt to stop the bidding war and I also don't think that the people that pulled the plug expected things to crash as hard or fast as they did.

Bidding war or not this time around I if the plug was pulled on purpose last time why I question if anyone is willing to do it again esp given that financial system is now intrinsically less stable. Its and open question as to if we could even survive another financial panic esp so soon after the last one.

What will oil do ? I'd argue obviously no telling but this time around as I said I doubt the bidding war get interrupted
Will it send many economies into recession you bet it will. If layoffs happen fast enough on a large enough scale we could even see the price of oil moderate. This could mean a drop or a slowing rate of ascent or even a flattening for a bit. Just as a panic causes prices to overshoot on the downside a bidding war almost certainly sends them higher than the intrinsic demand justifies. I'd argue that as long as the participants have the money I doubt prices will relax that much as most are more than capable of simply bidding higher.

Thats quite similar to your typical auction that has a number of wealthy bidders the prices soon clearly go beyond whats justified however as long as the auction continues the bidders will simply keep out bidding each other. Last time the world economy crashed this time I'd argue that one of the bidders will be taken out basically permanently. As with and auction with enough deep pocketed bidders the loss of one is unlikely to have a long term effect on prices the others are still more than capable of upping the bid.

Just as oil is not directly correlated with GDP we also have the flip side the price of oil vs the amount of money or wealth or if you wish GDP that can be spent on oil is huge. The amount of money in the world that could be redirected towards the purchase of oil is many times the size of the oil supply. We are in aggregate more than capable of bidding up the price of oil till it literally collapses a economy.

One thing is very clear to me we simply don't have a case of flat supply and suddenly wealthier people rapidly changing their oil consumption and out competing the original buyers. Not in China not anywhere. The vast majority of original buyers have more than enough money to buy all the oil they need. Thats not to say price does not make them decide to fore go buying oil products like they would have at a lower price point but its not because they don't have the money perse simply that they don't feel its cost effective to keep their oil usage at its previous levels and perhaps cut back spending elsewhere. Others of course make different choices say cutting back on some other good and service because they value oil higher the elastic bidding is again and individual affair.

In my mind its clearly and obviously supply. And the real bidding wars ignite when supply finally falls to the point it begins to impact inelastic demand the point this is reached is a collective figure. The inelastic demand is by definition structural not and individual thing. I'd argue that for this to happen supply must be falling faster than elastic demand can respond. This does not mean that elastic demand is zero at this point simply that you hit some groups inelastic limit and this group was ready and willing to bid pretty much whatever it took to get its oil. I'm not sure how elastic demand changes under these circumstance however I suspect that it does not respond rapidly. The potentially elastic demand probably sees a sharp rise in prices correctly as a unrealistic bidding war and itself becomes inelastic over the short term. If you think a sharp price increase is a one time event your very likely going to go ahead in pay the price even if you would not have done so if it was clearly a longer term change. Similar to buying overpriced food in a theater or theme park you know its a short term thing. Thus demand for five dollar hot dogs in a theme park is far far higher than demand for five dollar hot dogs at a grocery store. Thus I think the sharp price increases of a bidding war have a counter intuitive effect of making overall demand less elastic. They are in a sense artificial therefore the market response is itself in a sense artificial at least over the short term.

In these terms all the financial panic did was simply to introduce extreme elasticity briefly to the supply demand equation. Simple fear overrode all normal economic modes the fear was of course real as rapid layoffs caused real demand changes. But this is not a rational market by any stretch of the imagination.

No way in a million years do you get flat supply and rising demand simply ain't happening.


1.) Falling supply and fairly slow price increases suppressing elastic demand.
2.) Falling supply and Inelastic bidding wars and rapid price increases
3.) Falling supply and a panic/structural collapse induced drop in demand and here finally falling prices.

You may notice a common theme :)

Memmel your posts are fascinating. I wouldn't be at all surprised if you turn out to be right about a lot of things, but in the meantime please keep voicing your thoughts.

I wouldn't be at all surprised if you turn out to be right about a lot of things

Not hard to do if you project every possible outcome over the course of dozens of long, rambling posts. In entropy circles they refer to the "monkeys at the typewriter" scenario. Given enough monkeys and enough time, the monkeys may in fact write the collected works of Shakespeare. Unfortunately, you have to delegate a whole army of readers to continuously inspect their typing to figure out if Shakespeare shows up in the output.

Mem mel has reached an ergodic limit of traversing the entire prediction state space.

Mem mel has reached an ergodic limit of traversing the entire prediction state space.

Memmel needs thousands of words to confuse the hell out of me. You manage the same feat with a single sentance.


I am slowly spending more of my time at the Azimuth blog. Those guys would consider my single sentence very crude.

It's all a matter of perspective, and my perspective is that the memmel output stream is a pointless exercise to follow.

Not how it comes across to me at all. I have been reading his comments with interest for years now and almost everything he says is based on the reasoning that we are much closer to a supply shortage issue than is currently accepted, but that it is also hard to see a clear picture due to obfuscation and he backs it up with some well thought out arguments and fairly novel approaches to try to deduce what is in fact possibly going on.
he rarely says this is how it is, merely proposes many interesting theories as he is clearly a free thinker. Whatever the outcome will be, it will clearly be non-linear anyway, so i don't get what your problem is really. isn't this a forum for ideas anyway? Stop being so narrow minded.

In my mind the single most important feature of a system in collapse is that right before it collapses it has not deviated that much from its original condition. Down to the second before collapse the system variables are consistent with any number of smooth trends that can be readily modeled with fairly simple equations. Until they cannot.

What causes this ?

One would think that symptoms or signals of and impending collapse would be obvious however the very nature ensures that these signals cannot be inconsistent with a smooth modeling of the past. They must exist but not to the point where they clearly break with past behavior otherwise you simply cannot get the smooth pre-collapse behavior. Given your assuming collapse the signal cannot be small it has to be huge.

To resolve this conundrum the shape or nature of the signal for collapse can be fairly easily defined. Its a large change that can be misconstrued and misinterpreted. Its clearly big and cannot be hidden but its nature allows it to be absorbed into "rational" smooth models. Its a worrisome bump if you will or departure but it can be smoothed over with fairly small changes to the model. In general its treated as a fairly random set of factors that just happened to converge and cause a temporary distortion to your favorite model.

If you throw humans into the mix on top of the natural shape of a collapse signal we can throw obfuscation and outright lies of increasing magnitude. Not only is the signal intrinsically of a form where it can be misinterpreted humans can manipulate the perception of whats happening even further. Indeed such efforts tend to lesson any need to change the models. The general trend of such interference is that most of the pessimistic models become far more optimistic. Failed optimistic models simply need a bit of tweaking to incorporate the failure. These then show either a temporary correction or a lowering of long term projections depending on how they are corrected. However the overall effect is one of a steady convergence of all the models based on increasingly invalid data.
If you keep feeding fake data into any number of models well they will simply and steadily converge on the lie your trying to tell.

With oil the parameter of interest is not what the models say but the assumed ultimate URR peak oil in any smooth models as fairly insensitive to the URR a large change in URR does not shift peak by that much. To get a large shift in the peak your forced to blow out your URR by several multiples indeed up to and order of magnitude change.

As I said its not a small signal if you know what your looking for. The number one signal for collapse is this extreme inflation of URR claims. And clearly it fits the criteria for a collapse signal.

Thats the primary signal I'm looking for and we have it in spades the more fraudulent it gets the closer we are to collapse.
The latest extreme estimate I've seen floated is 14 trillion.

Khalid Al-Baraik, Vice President of Oil Operations in the Northern Operations Area, has said that global oil reserves are estimated at 14 trillion barrels and that no more than one trillion barrels have been extracted from the reserve.

I'd say we are probably already collapsing that one is over the top.

Unfortunately, you have to delegate a whole army of readers to continuously inspect their typing to figure out if Shakespeare shows up in the output.

Coincidentally, I just watched "Three Days of the Condor" last night for the first time in years. That's the one where CIA "Operations" goes around killing its own analysts when one of them discovers a secret network previously unknown. Unfortunately for him he's discovered the agency's ultra-secret oil war plans. And all he did was read everything and see what showed up.

Not now — then! Ask 'em when they're running out. Ask 'em when there's no heat in their homes and they're cold. Ask 'em when their engines stop. Ask 'em when people who have never known hunger start going hungry. You wanna know something? They won't want us to ask 'em. They'll just want us to get it for 'em!

Yes indeed of my all time favorites. Won't be surprised if we see TDOTC on the tube more often as we slip further into PO. In fact, perhaps in a couple of years we'll see a remake. So here's the silly question of the day: who'll play Redford's part? More impotantly: will the Times run the story in the updated version?

"Hey Turner, how do you know they'll print it?"

While I do wish memmel took the time/effort to be briefer (and only 1 comma in that entire scree memmel ;-) his points do at least follow and make sense if you plough through. As we've seen in the past WHT, that's more than can often be said for yours.

What was that phrase my physics lecturer used to use? - "mathematically elegant and practically useless".

In his edging towards catastrophe theory and diminishing complex attractors, I feel he's getting closer to the truth than deterministic mathematical modelling is likely to manage. This is a dirty and human domain, not pure at all. Maybe you could listen to what those monkeys are saying?

I am kind of glad that many people can't follow what the math says. It means that I don't track BAU and the people that don't or can't follow it likely have their mind indoctrinated by conventional knowledge.

What this means is that I have this field all to myself; from a selfish POV, that is alright.

In his edging towards catastrophe theory and diminishing complex attractors, I feel he's getting closer to the truth than deterministic mathematical modelling is likely to manage. This is a dirty and human domain, not pure at all. Maybe you could listen to what those monkeys are saying?

I have no idea if you are referring to me or to Memmel. It can't be me, because I don't do deterministic modeling at all and don't refer to catastrophe theory. And it can't be memmel because he doesn't speak math, doesn't do any math, and therefore can't really resolve any of the many contradictory points of logic that he brings up.

What is the mathematics of collapse ?

Chaos is certainly part of it but all it really says is you can get exponential divergence from arbitrarily close points.
Chaos also says that regular trajectories are dense in phase space regardless of how chaotic a system looks it always has regular orbits.
Thus no matter how irregular a system becomes it always has order.

As far as using nonlinear chaotic equations as predictive tools well forget it. Indeed on top of this we have non-linear feedback loops.

The real math if you will just suggests its a tangled mess and at every turn it rapidly loses its predictive power.
People don't care about mathematics they simply want some shaman to predict the future. How its done is irrelevant.
Given that the real mathematics of complex systems are not predictive can simpler solutions offer a prediction ?
Are they any different from simply casting bones ? Why would they work ?

Well perhaps in a sense they can despite the complexity of complexity we happen to know that no matter how complex a system becomes it still has its breaking points where it shatters. One can make as simple or complex a shape as you wish out of glass drop it and it shatters.
The complexity in all its mathematical beauty cannot transmute glass to metal it still is glass and will shatter if dropped.

If anything complexity lowers the shattering point clearly a glass sphere or marble can withstand more force than a delicate vase.
Simplicity clearly maximizes the ability to withstand forces whilst complexity reduces it. Also if you experiment a bit once you move beyond some very simple geometric shapes additional complexity simply changes the way the system breaks your all but assured of some breakage with much less force that required for a sphere. The complexity is introduced by adding planes and handles and tubes to the glass the moment you have any sort of complexity in the design it breaks.

Complex systems thus exhibit a natural fragility thats the combination of the intrinsic strength of the material and the weakness imparted by how its shaped.

One can see that thresholds come into existence quite similar to a phase transition or melting. Indeed complexity is itself closely related to simple phase transitions. In a sense its a type of melting.

I think these thresholds are real for my glass example they can be measured indeed such measurements are common in engineering.

However its also abundantly clear that the behavior of a complex system under stress has no relationship to its behavior with out stress.
Predicting the behavior of a vase falling off a mantel based on its behavior while on the mantle is nonsense.

No one would do that.

Yet the heart of almost all predictions about the future of oil production have such insanity built into the prediction.
Because the vase set on the mantle for decades you start by assuming its on the mantle.

I don't use this approach I assume yes the vase obviously is on the mantle to begin with however we are having and earth quake thats shaking the mantle and rocking the vase. If your not careful the vase can fall and shatter.

For some reason I cannot fathom people seem quite capable of ignoring the earthquake thats happening.

In fact its worse than this not only are they ignoring the earthquake they focus on adding more handles to the vase as some sort of solution.
Ignore the tremors see how good we are at making a pretty vase.

Mathematics ?

Well explain to me the mathematics of a ever more complex vase on a mantle interacting with an ever stronger earthquake.

Clearly unless you recognize the fundamentals of such a situation and grab your vase will eventually shatter even if its impossible to really guess exactly when. Indeed at the heart of my concern is that most remain unaware of the growing threat but eventually someone will do the obvious and make a grab for the vase.

The real solution if you will is not to try and save the vase but melt it down into many robust marbles.

Now back to mathematics clearly despite the complexity of the system I described there are thresholds for example if the vase eventually falls by simple tilting over the angle can be determined. It can of course fall via any number of paths but once can see that these paths are fairly well defined and have thresholds. And to some extent they are related to the shape and nature of the vase itself.
If you have no hope of saving the vase well watching the vase closely is not a waste of time. However what your watching is how the vase is interacting with the earth quake not how the vase itself was created.

Now can I get my timing wrong as I watch the vase dance and wobble all over the mantle ?
Given the complexity of the vase can some pieces be broken off perhaps stabilizing the remaining pieces ?

All of this can happen indeed I have little hope of guessing the right time however in watching the vase dance and wobble it seems that the amount of time left that it can move is finite and declining. The wobbles are relentlessly increasing breaking off more pieces no longer stabilize the vase but begin to destabilize it. You cross a threshold where although the exact time the vase falls remains unknown the shaking has reached the point that the vase is now certain to fall.

We have crossed this threshold.

Thus now its not the vase itself thats important but the wobbles and gyrations and how fast they are growing. One need only assume the vase is still complex increasing claims about how beautiful and big the vase is and how it can grow are now only attempts to hide the violence of the wobbles they are not real. They are not useless however as they are indicators of just how badly the system is wobbling.
Can't you see its not shaking its just growing in a different way. Thats not and edge to a cliff we simply have not perceived the bridge across indeed its not a cliff its a wide and almost infinite plain not even a bridge. The truth can be seen as and almost perfect inverse to the ever growing lies.

Now with all that said a smooth analysis is not without its uses. It can take you up to the point at which the system destabilizes and to some extent it can suggest just how strongly the system will be shaken. However any such analysis should never ever use any data procured when the system was clearly under strain as such data is corrupt. Indeed the best and most valuable data comes from when the system was far from its stress points and growing naturally. The rest of the data become increasingly suspect as its entangled with problems in growing the vase and the initial tremors suggesting and earth quake is possible.

My best guess for oil is that whatever data we collected through the 1970's is valid and trustworthy. Given that the vast majority of the worlds oil fields that are in production today are producing from fields and regions discovered up through the late 70's one can be comfortable in assuming that this data is good along with projections of future discoveries made at that time.

The future history of oil and indeed the underlying reason for the earthquake itself is the rise and fall of these fields. How they where developed and how technology allowed us to keep production high even as these resources approached exhaustion. I claim that they are all that matter. The depletion of these fields is both the driving force for the rising quake and the intrinsic shape of the vase.

Not only is later data highly suspect its not even relevant to the situation. Yes it does have some impact on exactly when the situation collapses but given thats intrinsically unknowable and does not change the basics one can easily ignore it.

If one assumes as I do that Hubberts original low URR hypothesis was basically correct well then it does not really matter how the vase dances around its symmetric peak in about 1990. Clearly the system is unlikely to make it to 2000 before the underlying dwindling of the key reserves found till 1980 result in the system approaching and crossing its stability threshold. By definition every year after that is simply bringing the system closer and closer to collapse regardless of the path it takes. Its practically certain to have collapsed by 2030.
Its very very likely to have collapsed by 2020. Between 2000-2020 the system is simply wobbling and clearly approaching collapse.

Going back in time it certainly could have collapsed as early as 2000 however this date is less likely than say 2005. Thus one can reasonably bound the collapse period as say 2000-2020. Clearly from history we can set a tighter lower bound near 2005. Indeed today I'd argue we can set and upper bound to the wobble period this is predictive of an unpredictable event however I'd say that the collapse period for oil was from the period of 2005-2015. This is when both the onset or certainty of collapse became real or certain and when the time threshold become reasonably determinable. Soon we will be able to look in the rear-view mirror and see as we are now clearly much closer to the end than the beginning. Indeed we are entering the period where people are starting to seriously consider "grabbing" the vase.

This is what I now see as the intrinsic event of collapse for oil production. Everyone suddenly realizes that the future will soon be very bleak and attempts to grab whats around today because oil will become a very precious and powerful commodity in the future.

What matters now is that future oil production is likely to be much lower soon given how we have produced the oil. This means the arbitrage play between those that have oil vs those that do not is immense. Today we are looking at 100 dollar oil vs 500-800 dollar oil at some point in the near future. Its two different worlds with a tremendous chasm between them. Indeed the big secret is its no longer secret.
This change is now destabilizing the situation. The final recognition that the current system is about to fail is now itself driving the system even harder. Now people have no problem with temporary measures that themselves will eventually result in system failure to simply keep the game going a bit longer to allow more jousting and intrigue for a better position after the system has failed.

Its already operating in post failure mode if you will with people making grabs at the vase if you will simply to have something after collapse. When it actually falls apart is anyones guess but the end game is now being played out. For the moment at least basically all the players are in agreement that preserving the veneer of normality is in everyones best interest. I doubt seriously that this will last much longer. Control of oil will increasingly become more and more important and keeping up the pretense of normality both less important and increasingly difficult.

Using my vase analogy I see the real ending not with the vase falling naturally off its shelf but with it being torn apart by all those attempting to grab it. Not only are we close to the edge of the shelf we are highly unlikely to even reach the point we fall off.
This observation not only pulls in the point of collapse but more likely than not puts it in the past i.e it already happened.
I think all thats now left is for the nature of whats already happened to become clear as the need for pretense and obfuscation is lost.
If this final observation is indeed true then we are not really guessing about the time of collapse simply guess when the multiple grabs for the vase which shattered it become obvious. And of course the underlying earthquake has not gone away even though the vase is no longer whole sitting on a single shelf each piece is still dancing around on the new mantles as the owners of the shards are discovering.

Finally math ? What do you need math for simply understanding human greed, vanity and arrogance is enough. You don't need to understand all the mathematics of the firing of a projectile to understand that a murder has taken place. How the crime was executed is interesting I'm obviously fascinated, but that does not change whats happened the murder has taken place regardless of the details of the event.

What is challenging about TOD is that people have to make up their own mind about who is blowing smoke, who is diligently trying to understand the situation, and who is completely off their rocker.

Two points memmel:

1) Complexity is not chaos. It demonstrates repeated behaviours, attractors, that make it more possible to understand the system, provided you address it in the right way. That, specifically, is that you look at it as a whole system and don't try reductionist/deterministic approaches to understanding. That's difficult, since most of us are trained to reach for that tool - but it is possible. Therefore, within those constraints, prediction is possible - the trick is knowing how far is too far.

2) If you want to extend your metaphor, glass with added complexity CAN be more resilient than simple glass - think glass fibre. That's a system where the complexity strengthens the whole and where it can go beyond the capabilities of the simple.

In the same way, you can engineer complex adaptive systems that are more resilient and slap Tainter's more complexity=more energy around the face, but you have to look at the system as a whole, think deeply, and engineer rather than trusting to fate; with the human dimension too.

Ok Don I'd like to do this. Anyone that thinks that oil production has been relatively flat and that they have a good handle on how oil and the economy relate should be able to replicate the production curve from the economic data set of their choosing.

So I argue you should be able to do a post that derives the obvious economic changes and show how they result in a flat oil supply.

Now your free to argue the problem is not reversible fair enough. I'd argue that if I took economic graphs up till recently that oil supply and economic growth where highly correlated for the most part.

I'd like to challenge you or indeed anyone thats interested in this problem. If you can show how economic activity gives a certain curve esp a flat one I'm keen to see it. I'm not saying such a reverse argument has to be perfect just reasonable close. Whatever arguments you make they should be able to give a good fit over the last several decades.

For the most part simply assuming that oil demand grew as the economy grew and it slowed or even dropped as the economy dropped is more than enough to give a reasonably good fit over the majority of the last several decades. There are interesting periods of course and not just now. But in general I'd argue that with just a few basic assumptions about GDP and population and your starting point you could easily trace out the shape of oil production. With some more reasonable corrections I think you can do a even better job.
If I have the debt for a particular country and subtract some for debt based growth. I.e growth from expanding debt has a lower impact on oil demand then I bet I can get excellent matches.

I think this is a good challenge people that argue certain economic result based on oil data should be able to reverse the argument and argue oil data based on economic data. If the theory is sound then I argue its reasonably reversible. I think in my other post above I did a fair job of fitting economic events to falling oil production. And I'd argue that its fairly reversible in other words I see no problem with taking recent economic events and oil prices and arguing that oil production has probably been falling for a while.

So I'd argue that my position is consistent with what I think the oil production data is, indeed its trivial to fit steadily falling oil production with the economic data or vice versa.

I'd like to see the "flat oil" version where flat production is at least reasonably deducible heck rising production for that matter or flat production and significant conservation take you pick any one you want to make. Indeed oil production supposedly increased significantly recently so hey someone is free to show how the economic data clearly supports rising production. Heck of a really short time scale i.e last few months perhaps you could even put together a compelling argument.

Since I have to do this routinely I think its sensible to see if others can do so.
If you don't think you can deduce the oil curve from the financial data then why not ?

. . . I think the U.S. will be able to afford $90 oil (and $150 oil, when it gets there) better than most other countries, certainly better than China, which is a low-income country.

As they say, predictions, especially about the future, are tough, but here is a normalized 1998 to 2009 oil consumption chart for five oil importing countries (1998 = 100), as annual oil prices increased at 20%/year from 1998 to 2008 and at 14%/year from 1998 to 2009:

At Chindia's current rate of increase in net oil imports, their net oil imports--expressed as a percentage of global net oil exports--would hit 50% in 2019 (and 100% in 2025). As they say, somethings gotta give.

And as I frequently note, global oil consumption rose throughout the Thirties, after falling in 1930, and US oil prices rose at 11%/year from the summer of 1931 to the summer of 1937.

US consumption will go down because of our inefficient use of oil, coupled with our large trade deficit. It will go down especially fast if the dollar loses its reserve currency status and we cannot benefit from global seiniorage.

India's consumption will go down because it has not controlled its population and it will be faced with the choice of spending foreign exchange for oil or for food. A number of other oil importing lands are in this unfavorable position.

China's consumption can continue to go up because it has controlled its population growth much better and can use oil as a basis for producing high value exports to earn the necessary foreign exchange.

China's consumption can continue to go up because it has controlled its population growth much better and can use oil as a basis for producing high value exports to earn the necessary foreign exchange.

Yes, the Chinese population is not growing at any significant rate, so all of its economic growth (which is enormous) goes into improving people's standard of living rather than feeding more mouths.

The Chinese have a huge manufacturing base which can produce vast amounts of cheap goods which people in the oil-exporting countries want to buy (most of them are closer in income to Chinese than to Americans). In order to buy oil, a country needs to be able to sell the oil producers things which they want in order to get its money back. Otherwise all its money ends up in other countries and it has none left to buy any more oil.

This is the problem that the US has. Because of its enormous trade deficit, all of its money is ending up in the oil producing countries. The US, however, doesn't produce too many things that their people want to buy, so all those US dollars eventually end up in China. And the Chinese use them to buy more oil.

Both China and India have had rapid economic growth over the past five years; to provide liquid fuels for this growth they have substantially increased their imports of oil and oil products. But I question whether or not Chinese and Indian growth can continue. A tree does not grow to the sky. The same things that limited growth in Japan over the past fifteen years can happen in China and India. In particular, I think the Chinese real-estate bubble is bursting, and as a result China will be in a recession within a year. Indeed, it is possible that China is in for a long period of economic stagnation, similar to what has happened in Japan, which has had approximately zero growth in real GDP since the bursting of its speculative bubble in real estate.

Present trends never continue indefinitely. That is true for population growth and for economic growth as well. I expect that decreasing production of oil combined with higher prices for oil will trigger global recession or depression. China and India and the rest of Asia will be part of the global decline in real GDP and a decrease in international trade.


I would really like you to be right and perhaps some of our factories will come back to U.K and U.S.

But i really think you are wrong, if you read about the deals China are doing for Oil, gas and coal with the following countries.
Iran, Iraq, Brazil, Venezuela, Nigeria, Sudan, Russia, Australia and Kazakhstan.
You start to get the picture of a country which is massively increasing trade with other countries.
So any slowdown in United States will be taken up elsewhere.

When US had recession of -6%, China still had growth of 6% and they are more diversified now than before.
Their exports will simply go to these countries more than ever.

I think you will still be saying China will collapse this year in 2011 and 2012.

No, oh no, I am not saying that China will collapse this year. What I think will happen this year is a collapse in Chinese real estate prices that will trigger a recession. "Recession" is far from "collapse." The real estate market is not the whole country. Note that both Japan and the U.S. have survived major real estate collapses, but their economies and societies are still intact.

Sorry I used the word collapse, not sure where that came from, but I feel with the vast amounts of private savings and government savings in China they will prevent a recession. A 9% growth rate may go down to 5% at worst. We will have to see.

We will indeed have to wait and see. However, looking at other economies that were growing extremely rapidly (e.g. Japan) the consequences of a real-estate collapse have been recession at least and, in the case of Japan, long-term deflation and stagnation in real economic growth. During the nineteen eighties, Japanese economic growth looked a lot like China's economic growth over the past ten years.

Exponential growth of six to ten percent a year does not last for long. China is no exception to this generalization. China is now primarily a capitalist country; one of the main ills of capitalism is economic fluctuations.


During the nineteen eighties, Japanese economic growth looked a lot like China's economic growth over the past ten years.

I am surprised at your comment. To me China's current development is similar to Japan during the late sixties. Olympics Japan 1964 / China 2008. Domestic cars just breaking into the world markets, Manufacturing known for cheap nasty western copies. Raw fuel consumption rising at greater than 10% PA. Freeway and fast train network being rolled out etc. Japan grew quite fast for the next two decades, and China is 10 times bigger than Japan. I believe there is long way to go in the old girl yet.

But as I told the men that I was working with in China, "Not every Chinaman will be able to drive a car. There will not be enough oil" that was in 2003-4, and I still stand by that statement.

I take your point about Japan in the sixties being comparable to China today; however, Japan did not have a speculative frenzy in real estate in the sixties--but they did in the eighties. Time will tell what the consequences of a real estate collapse will be in China.

It seems to me like China is going through japan's economic growth and it will end with a hyperspeed growth-stagnation phase(basically a bell curve) at a faster speed, in line with there being less oil available over all when they started out.

Japan might actually collapse this year! Memmel has been saying that and now on Bloomberg there is an article about how tax revenues are less than bond sales (i.e govt of Japan is funded by printing money) now in Japan.

I mean, Japan always has been early for everything...early for a population boom, early for an economic growth spurt, a credit bubble, a financial collapse, a stagnation event. Hey, someone has to go first. So what if Japan just is at the head of the line as far as currency/economic collapse goes too? The yen goes, the banks shutter, the army shows up to maintain order. But the country has a highly developed sense of social order so people cooperate and try to live on extremely little. (One reason I like it here is because I am a really frugal person who delights in having no car, no cell phone, no sofa, no des, etc. I know a lot of frugal people in Japan. It is a kind of natural way of thinking here.)

As memmel said, the oil saved will provide some breathing room to the other industrialized economies. And they might send some bags of flour over to show their gratitude. I really think that by taking turns to collapse, the countries of the world will help prevent the worst...because the ones that collapse "send" their oil to the others, who help prevent the worst devastation to the ones that have dropped over the edge by sending a little food.

Or is this just wishful thinking?

Collapse---doing it well will become an art.(?)

Anyway, as far as my personal thoughts about it go, I think I am tired of throwing away bags and bags of plastic bags and paper everyday. The waste that goes into the water and air is tragic. A lot of people here agree with me, so when collapse comes, people on some level will embrace the idea because there will be less garbage.

And the countries that collapse first can "show" the others how it's done. An honor and a privilege? No matter which country goes first, maybe so.

I think it's been discussed here - that China is buying oil assets and entering into contracts, alliances, partnerships etc, which will result in flow of oil straight to China. If that happens, that oil is taken of the market and USA will be in competition with everybody - but China...Can China buy 5 or 8 million barrel per day of assets? If they can, than one can count this production almost as domestic (Chinese).

If not, their oil bill is reduced and they will be able to pay high prices. China holds $850B (Wikipedia) of US Treasuries, with coupons everywhere between 2 and 5% (Bloomberg), so let's say interest payments are $30B per year. That is on the order of 1 Mbpd "for free". This money can not be spent in China anyway, for inflationary reasons so it really is free oil.

A number has been quoted on TOD that a "barrel flowing" costs $30,000 to $50,000. So for sake of argument for $400B they could buy 8 Mbpd which is all the oil they may need and there is $450 to buy other resources. These would be off the market too. It's is a good question how much they can buy - I recall they wanted to buy a US oil company a few years ago and the deal fell through on strategic politics.

Can the competition for actual commodities might come not from China, but from everybody else, also deprived of resources siphoned by China?

A number has been quoted on TOD that a "barrel flowing" costs $30,000 to $50,000. So for sake of argument for $400B they could buy 8 Mbpd which is all the oil they may need and there is $450 to buy other resources.

This is a point I have been trying to make repeatedly. The Chinese have the cash (in American dollars) to buy all the oil they need. If the price doubles, they still have the money to buy all the oil they need. The same is not true of the US - it has a huge international debt and is running massive trade and government deficits. The Chinese will take a major oil price spike in their stride, the Americans will not.

It's is a good question how much they can buy - I recall they wanted to buy a US oil company a few years ago and the deal fell through on strategic politics.

Well, it probably seemed like a good idea, given the nominal commitment of the US to free markets. The US government blocked the sale, demonstrating their commitment to free markets was only theoretical. The Chinese took the hint and proceeded to pay billions to buy up interests in oil sands companies in Canada and billions more to buy up other oil companies in other countries. They now hold tens of billions of barrels of oil reserves all around the world - just not in the US. In fact the international oil reserves they control, directly or indirectly, may exceed the remaining oil reserves of the US. It's hard to tell, given the rather subtle ways they operate in.

Canuck - I can offer some generalities but I don't think anyone can give a good estimate on the spreads on Chinese oil assets. First, there are two big categories: proved producing reserves and undeveloped reserves. Folks buying producing oil wells in the US are paying around $70,000 per bbl of oil produced daily. So a field making 100 bopd is selling for $7 million. But there is a range that's field specific. Much more difficult (if not impossible) to come up with a similar metric for overseas production. The concession and trade terms can vary quit widely. Transport costs are a much bigger factor with foreign fields also. The Chinese have also done finance deals but I've seen few details. I know they floated a huge loan to Brazil for their DW drilling program. I suspect that the Chinese got, in addition to interest payments, either a discount on the purchase of future Bz production or, more significantly, a ROFR (right of first refusal) on a significant volume of Bz crude. A ROFR allows China to buy Bz crude at market price before any other buyer. So even if a US refiner is willing to pay $X/bbl for Bz crude the Chinese can buy that production by just matching the $X. The net result is similar to that oil being taken of the market.

But the big financial leverage develops when China takes a WI (working interest) in a field especially if it's in the early stages of development. By paying a percentage of the costs China owns a certain percentage of the production stream. On a good field this might equate to a final ITTC (in the tank cost) of as little as $10/bbl. Not sure of the exact numbers but China appears to have a substantial WI in much new Angolan developments as well as in other producing regions. Again, terms vary but typically China is free to ship that oil to China (or do a swap with another crude source) or sell it on the open market. Obviously a huge stick in the world of declining resources. And despite some of the hard nosed talk thrown around I serious doubt any country will be able to interfer with this commerce. Beside the World Court having significant powers in such matters I don't think the Chinese would just stand by with their hands in their pockets. In fact I recently heard the Chinese are planning on building an aircraft carrier force. A handy tool to reach out and protect a country's financial interests. The US has used this method rather effectively over the last few decades. I wouldn't expect a shooting match to develop but one air cap can readily neutralize another.

I think this is really important and shows clearly the game china is playing. If they capture oil production at cost then their outlay is capitol cost plus production costs. This is fairly independent of world oil price once actually producing the oil is profitable.

On the capitol cost side it need only be reasonably close to other possible investments given the way the US has manipulated interest rates any commodity investment is probably a winner if the demand is there. Since china is making their own demand well...

This oil then becomes quite similar to oil in the US and UK all the value add through final product manufacturing was captured.
The overall wealth yielded from domestic and or "captured" production is huge. You can of course nominally sell such oil at open market prices and or subsidize product costs or both. Does not matter is its throwing off real wealth accumulation its just how you divide all the money. Only costs have to be covered its your typical vertically integrated solution.

Interposing a national oil company makes the bookkeeping a bit more complex and limits the partitioning but as long as you capturing all the wealth nominal ownership is not and issue. Giving some dictator a few billion than managing the money in your financial centers while stripping most of the profit is not all that different from directly having it in your account. Its really just a notational thing and a bit of what amounts to added interest or a tax. Obviously it also precludes some more direct subsidy schemes.

The US of course has already done the direct capture and then eventually after nationalization a slightly more equitable sharing.
China is simply trying to execute the same model. In this particular case since we already got burned once via nationalization I don't think the US has a huge problem with what China is doing. I suspect we will simply bide or time and wait until we have the nationalization event take place. As these events happen what happens next will be ahh interesting :)

In the big picture the US approach was gunboat diplomacy at first with direct intervention then later via support of dictators that set up the financial agreements to ensure the flow of wealth. For us the key and critical component was the use or threat of military force to get countries to do our bidding.

China clearly will be sucked into this same vortex if you will. Eventually China will have no choice but to also introduce the threat of military force to protect its "investments". If they don't then they will end up with a tenuous and unsatisfactory hold on raw commodities like Japan and Europe forced on the treadmill of shrinking margins.

Thus given that China has chosen to directly use the US playbook if you will, we know all this and I'm sure they do to.
And both parties are very aware that as China executes eventually there will be some pretty fascinating things happen.
No rush they will come along in due time.

Projecting future returns from current Chinese investment is at the very least premature.

China is simply trying to execute the same model


It is nothing like the same model, if you read the history of UK and US oil companies in Iran, iraq, Venezuela, Saudi and the like they were very different.

The original deals with these countries were little better than oil theft.'%C3%A9tat#Early_petroleum_development

Post-World War IThe Persians were dissatisfied with the royalty terms of the British petroleum concession, the Anglo-Persian Oil Company (APOC), whereby Persia received 16 per cent of net profits.[30]

In 1921, a military coup d'état—"widely believed to be a British attempt to enforce, at least, the spirit of the Anglo-Persian agreement" effected with the "financial and logistical support of British military personnel"—permitted the political emergence of Reza Pahlavi, whom they enthroned as the "Shah of Iran" in 1925. The Shah modernized Persia to the advantage of the British; one result was the Persian Corridor railroad for British military and civil transport during World War II.[31]

When these countries demanded a 50/50 share then the US and UK tried to crush the governments.

In 1952 Iraq followed the examples of Venezuela and of Saudi Arabia by demanding and receiving a 50 percent tax on all oil company profits made in the country. The tax more than doubled Iraqi profits per ton on exported oil.

China on the other hand are paying real money upfront to these governments, a major difference as the people in these countries are actually getting a fair price for their oil.

They are also clever enough to make sure some of this money goes to the poorer people.

China has learned one thing that America never did, people respond to money better than Bullets and bombs


They are actually giving better things than money, they are actually building things. Chevron has been pumping oil out of Cabinba, Angola since the 1970's and the money has gone straight to Luanda (capital city)and onto Swiss bank accounts of the governing powers. Since the Chinese have arrived many community projects, schools, roads, foot paths etc can be seen under construction, with Chinese labour a lot of the time. Things are finally moving.

Here is a classic cold world story about Angola and Chevron.
1/ Chevron was producing oil in the Soviet backed area government controlled area of the country which financed the war.
2/ Unita , the rebels, were financed by diamonds and backed by the US govt.
3/ The Soviets employed Cuba to fight the war.
4/ The US employed South Africa to fight the war.

So Chevron a US company had Cuban troops manning the machine guns at Cabinda airport to protect the Chevron workers, many of them American, from the US supported Unita rebels and South African troops. I do not think this story was covered by MSN at the time.

Heck look at Iraq and Afghanistan if you throw in the Israeli's where did the opposition to the PLO come from.

The US has been involved in the creation of both sides of most conflicts for a very long time.
Heck I'd say the Russian revolution was probably the last truly European affair but one would have to assume you can disentangle WWI from the Russian revolution I'd argue you cannot any more than you can for China.

Indeed the intrinsic of empires seems to be a succession of problems created by the empire itself of course this absolutely justifies the need for Empire to solve such problems. The history of all empires seems to be the paradox of their meddling eventually involves more meddling with plenty of switching of sides in the interim. I think George Orwell in 1984 nailed it.

China has learned one thing that America never did, people respond to money better than Bullets and bombs

Are you sure about this ?

Just how long do you think it will take before China decides it needs to bring in it own troops to "help" the local government protect chinese
workers and humanitarian projects ?

Opps not long at all it seems.

Perhaps the need to send in troops to protect innocent workers is not just a game played by the US with NGO's.
Or do you believe we allow these NGO's to operate with little or no real protection and oversight ?
Who do these NGO's come crying to when they are inevitably captured raped and killed ?

Now are you sure that these chinese working in these countries are there because of the humanitarian aid ?
Or perhaps they serve some other far more useful purpose ?

I'd argue your simply looking at another page from the same playbook. Indeed the game of protecting your citizens in a foreign land is from a much older play-book the US did not create that gambit by any means.

In the end its simply a way to introduce troops into a country if needed nothing really humanitarian about it.

Now if the Chinese took the time to actually train Ethiopia or Sudan to operate its own oil fields say in a manner similar to Aramco I might feel a bit differently. It might even take a decade to teach them how manage most of their own operations but hey teaching a man to fish takes time.

Show me one case where a nations oil reserves where developed by sending all its nationals to learn the business ?
And later as the oil started to flow teach all the other needed trades and skills ?

I cannot think of a single time in history where and indigenous population was taught how to extract and control a natural resource by those that both desired the resource and knew how to extract it. Not once ever as far as I know.
Show me once in history where one group decided to teach another all they knew until they could interact as equals.

Heck probably the closest you can get is technology transfers from the US and Europe to Asia back in the 1920's. Not that this was not done without strings attached. Indeed perhaps the closest example to such a situation was the US opening of Japan. But to suggest this move did not destroy Japanese culture is ridiculous. Clearly although this method is similar in many respects to maneuverers that China is doing today the end result is obvious.

I suggest you read you history. As far as I can tell nothing is ever done at a national scale without and underlying vulgar or sinister motive. Do you think we sent all that aid to Haiti because we felt sorry for them ? Pretty interesting how help has slowed once the threat of a massive migration has dwindled yet they remain living in rubble. Funny how that works.


Firstly the telegraph article is from the year 2000 and if you have not heard elections have been held in Sudan to form a new country in the south. Something that nobody could have imagined a few years ago. It is the best thing that could have happened and if China had a hand in this then great.

Then to pick Ethiopia to defend your argument is ridiculous.

Ethiopia has been a corrupt country bordering on anarchy for years.

The fact is when the U.S. and U.K. first went in to countries like iraq, Iran and Saudi they gave these countries as little as 5% of the revenue. This is the reason for these countries demanded new deals. The response by the U.K. and U.S. in iran was to overthrow the elected government and install a puppet dictator and create the SAVAK secret police.

Is it any wonder they hate us and kicked us out? we took away their chance of freedom and had opposition groups tortured and murdered.

More recently the CIA are doing the same thing in Venezuela.

Funny if it was not so sad, but CIA may have put him in power in the first place.

China on the other hand are dealing with most of these countries with a degree of simple business honesty.
I did not say they were there for humanitarian aid, so do not twist my words.

The Chinese are simply saying you got oil, we will pay for it, the real going rate and more.

Furthermore what makes you think all these people need to be educated and westernized, how arrogant to think that their way of hunter gathering is any less than ours. Many just want to grow their crops and fish in rivers where oil is not killing the fish they eat.

Jaz the Communist party in China is not full of nice people like you seem to think.

They are ruthless as hell a fairly nasty mix of plain authoritarianism, basic welfare state, crony capitalism and outright corruption.

This is a pretty good article.

If you can I recommend you visit china and get out of the main cities.

The point I was trying to convey was that the Chinese don't have the sort of nobility that your ascribing them they are opportunist.
They will cut any deal that needs to be cut to achieve a goal. If its helping works help, if soldiers are the answer use soldiers etc.
The most important thing is they have don't ascribe to some sort of moral cutoff like the US does perhaps both for good and bad.
They are not going to always go for absolute greed as the US tend to as your examples show. But on the same hand they have no problem employing force if thats whats needed. And they are far more aware of the ramifications of the use of force i.e they are probably more
realistic than the US is on both the decision and its aftermath. To cut it short nothing is ever off the table with the Chinese all options are possible and can and will be used as circumstances dictate. For the moment this means in general cutting pretty good deals.
If circumstances change they will change. Indeed lets see how things unfold in Sudan as circumstances have clearly changed.
My guess is the Chinese will simply cut a new deal in this case with Southern Sudan and switch sides but all we can do is watch and see how it plays out.


Again I never said they were nice, the rulers and powerful industry of China are as ruthless as the US government and business.

Among the key pieces of evidence Saro-Wiwa's lawyers hope to show jurors is a secret memo authored by the head of Nigerian security forces in the region.

"Shell operations [are] still impossible unless ruthless military operations are undertaken for smooth economic activities to commence," the memo reads.

Is this the moral cutoff you are talking About?

ROCKMAN, Thanks! At the end, every case and scenario you showed ends up with oil in China before anywhere else at less than (and sometimes equal to) market price. That's maybe not scary, but quite thought provoking. Is there several million bpd of resources available to Chinese in this kind of "take-over" approach.

They bought 9% of Syncrude half a year ago. The company is still Canadian controlled, but barely at 55%, can they apply the same pressure to take their 9% of Syncrude and ship to China (logistics nothwithstanding). NAFTA, contrary to popular belief does not apply to oil exports.
9% of ownership entitles you to 9% of profits - or 9% of oil?

Canuck - Sorry...don't have a data base to guess the daily volume the Chinese have lined up...never enough details. Not sure how NAFTA would deal with oil ownership by China. Maybe our Canadian Todsters can answer

If the Chinese own 9% of Syncrude, they own 9% of its oil production. It is Chinese oil and they can do whatever they want with it, including sending it to China. NAFTA is not operative in this context - it has nothing to do with NAFTA.

For some reason many people think that NAFTA requires Canada to keep the US supplied with oil. It does nothing of the sort. The US gets to compete with everyone else for Canada's oil, and pay the international price for it. If someone else outbids Americans, that's their tough luck. Read the fine print and learn.

I believe Michael Klare made many of the same points in an article in the Nation a couple years ago, but I couldn't find it in the archives. Does anyone have a link? Am I remembering wrong.

This is a very welcome post. I am guilty of sometime berating Rembrandt in his 'Oilwatch Monthlies' (which I miss, sorely) for leading with these kind of composite graphs that always struck me as exactly this kind of intentional (though not on R's part, of course) obfuscation.

Let's keep our eye on tracking the conventional crude that has been the main subject all along. Additional charts--whether they add other liquids, keep track of exports, graph percapita output, or try to do something coherent with EROEI--are fine to then add in. But we should always start with a clear conventional oil production graph. (I do think biofuels should never be lumped together, and particularly low EROEI liquids like tar sands should probably be marked off in a special way, too).

Leanan: Has the OD considered putting a word limit on posts? Some people seem to have a bad case of verbal diarrhea.

Would you prefer more posts from verbal, anal retentives? :)

Has the OD considered putting a word limit on posts?

I'm not Leanan, but I can answer that:  Yes.

Some people seem to have a bad case of verbal diarrhea.

Believe me, even people who visit one discussion thread out of 30 have noticed.