Peak Oil - the clear and present danger

Global oil production (crude oil plus condensate) has been on a plateau / in decline for 7 years, resulting in high energy prices that are feeding inflation, eroding family budgets and crippling the World economy. It is time for the international political community to awaken to the risks posed by Peak Oil. A British Government report published last week under a Freedom of Information Act (FOIA) request makes clear that civil servants working at the UK department of Energy and Climate Change (DECC) seem very aware of the risks posed by peak oil, and yet the British Government seems happy to continue to ignore warnings.

The post is co-authored by Oil Drum contributor Sam Foucher, who did most of the data mining and provided the adjusted JODI and IEA data. Oil Drum commenter KLR provided this spread sheet deducting natural gas liquids from the BP data.

In recent weeks we have been taking a detailed look at discrepancies between oil production data reported by various agencies. Whilst doing this is important, there is the risk that we lose sight of the big picture shown in the chart above. Despite continued high price, it has not been possible to raise global oil production since 2004, indicating that supply has become inelastic. Data sources and methods are described in the box at the end of this post.

Last week The UK Guardian "newspaper" carried a story about an internal UK government report on peak oil that the government failed to make public and was eventually released under a Freedom of Information Act (FOIA) request made by French student Lionel Badal. The report, in form of a data and text rich Power Point presentation, landed in my inbox (hat tip to Jerome) and I was quite amazed by the content. Slide 16 in particular caught my attention:

Of the 17 bullet points on the slide, 16 have come to pass in the UK and in the neighbouring countries of Europe (click on slide to enlarge and open in separate window). Given that the research was conducted in 2007 and the report compiled in 2009, this conveys amazing insight by the DECC civil servants. Many may argue for different causes for the peak oil symptoms listed by DECC. But given the length of the list, near perfect correlation between forecast and events, and the fact that global oil production has not increased for seven years, is it not safe to now draw the conclusion that peak oil lies at the heart of the UK and global economic woes?

Two important items are missing from the list and when these are taken on board, the story is complete.

1. Peak oil may threaten the global banking and financial system since the Ponzi scheme of growth based on credit expansion requires a growing stream of cheap energy to fuel the real economy. When the stream of cheap fuel dried up, the real economy failed, toppling the global fractional reserve banking system that lay at the heart of the Ponzi scheme. Fractional reserve banking has now been supplemented by Quantitative Easing as a means of creating money to drive consumption of finite reserves.

2. Peak oil will threaten pensions since these are based upon the excess net energy produced from high ERoEI energy sources (Energy Return on Energy Invested). As the ERoEI declines and the lifeblood of cheap net energy dries up, it is inevitable that society's ability to care for those not in work (young, old and dysfunctional) will be steadily eroded. This links to point 1 above via declining stock market valuations.

It seems that the global economy may be on the rocks again for the second time in three years, stemming from energy prices that society can ill afford to pay. It is time for OECD and other governments to wake up and introduce serious energy policies to deal with the clear and present dangers posed by peak oil.

Methodology and observations

There are four main agencies reporting on global oil production:

1. The Energy Information Agency (EIA) in Washington that is a US Government agency.
2. The International Energy Agency (IEA) in Paris that is an OECD agency.
3. The BP statistical review of world energy, produced by BP, the UK based international oil company
4. The Joint Organisations Data Initiative (JODI) that is a voluntary form of NGO.

These agencies may gather information in different ways and they also report data in different ways using different categories and definitions of oil. The EIA reports monthly production data for crude oil + condensate (C+C) that includes synthetic crude oil produced from tar sands in Canada and Venezuela for all countries and giving a world total. JODI also reports C+C but only for 90 countries accounting for around 90% of global production. In the first post in this mini series, Dr Sam Foucher filled in the missing countries from the JODI data using EIA data giving an adjusted JODI proxy for global production that may then be compared with the EIA global total. BP report annualised average daily production data for C+C+NGL (natural gas liquids) and these data are not directly comparable to C+C reported by EIA and JODI. TOD commenter KLR deducted NGL data reported by the EIA from the BP data to get a BP proxy for C+C that is plotted in the chart up top.

The IEA report total liquid production. Bio fuels, refinery gains and NGLs were deducted from total liquids to derive the C+C figures.

Categories of liquids not included in the chart up top are NGLs, biofuels and the volume expansion that takes place during refining known as refinery gains. The latter are not actually gains at all since they represent volume and not energy expansion.

The chart shows annual average daily production. For EIA, JODI and IEA this is a simple arithmetic mean of the monthly reports unweighted for length of month.

Key Observations

The two previous posts in this series here and here examined the divergence between the EIA and JODI data since 2009 (see chart). Introducing BP and IEA data to the mix shows good agreement with the EIA and may tend to argue that these three sources provide the most reliable data. However, it may be the case that the EIA, BP and IEA are obtaining their data from the same source which remains unknown but rumored to be IHS. The source of JODI data is known to be direct reporting by national governments to JODI and it remains intriguing that the JODI data, which are based on government statistics, are diverging from the rest. The latest JODI production data reported for March 2011 shows production below 70 mmbpd. That is 6 mmbpd below the equivalent IEA data.

A production plateau was reached in 2004. The JODI data suggest that production may now be in decline whilst the EIA, BP and IEA data suggest that production remains on the range bound plateau. The difference here is really immaterial since high energy prices post 2007 caused by a failure to raise production to meet demand are traumatising the global economy.

Lovely work. Thanks so much. And a well deserved hat tip to Lionel Badel who has shown great resourcefulness and an elegant simplicity in his investigations. A simple FOIA request? Ab fab!

Here in the States of course we struggle with new uncertainty about EIA data. And even though EIA keeps updating international oil production (which they have so far) it's a lot less easy to pull the data from their databrowser. One of their normal categories, North Sea oil, is one you'll have to put together on your own. I did so overnight.

Best to all, and thanks so much for the data sets!


Very slow process to get it (about a year), but worth it... UK Information Commissioner (ICO) did its job.
I’m sure there are also interesting reports in the US about Peak Oil, but FOIAs are more difficult (many documents to fill and expensive...). Unfortunately, no FOIAs for the IEA…

Kudos Lionel! So you had to know that the report existed before you could request it under a FOIA request. How did you learn of its existence?

Its full of interesting stuff that I'd characterise as semi-competent. For example they try to make believe that the UK is somehow uniquely well placed to survive Peak Oil since we have low oil intensity in our economy - backing the buying and selling of CDFs ahead of manufacturing Mercedes Benz and Audi.

Second that! Outstanding work, Yoon, Sam, et al., and huge props to Lionel. Rationalizing those data sets was no easy task, and I'm grateful!

That is a nice plot of North Sea production. I assume this combines UK and Norway.

My own models of UK and Norway are separate and I got a combined average of around 3 million barrels per day as of 2010.

My UK prediction was low and the Norway is closer to the actuals.

UK prediction from 2005

Norway prediction

Documented in The Oil ConunDrum

If peak oil were reached several years ago, why is the price of oil so low? Here in New York, it is under $95/barrel. Gasoline futures are below $3/gallon. Peak oil theorists postulated years ago that within 5 years after Peak Oil, prices would skyrocket. Even the $150/barrel seen in 2008 was not the type of "skyrocketing" the peak oil camp had postulated. I had really hoped for Peak Oil because I wanted change, but as each year passes, I become more and more disappointed. Oil is a little more expensive than it was 15 years ago, but overall, it is still incredibly cheap. Highways are jammed with gigantic autos, I'm covered in plastic, and the sky is crowded with jets. How can this be if Peak Oil was reached almost 7 years ago?

Because, as the post highlights, the action is over in the financial sector of the economy, where we see increasingly desperate attempts to keep growth going and with it, the worldview of "progress" and "a rising tide lifts all boats." Despite being an existential threat, as the post makes clear, for the vast majority of people, PO is literally unthinkable.

Yes, and clearly some boats are a lot more buoyant than others.

The price has stayed low because we're still on the plateau, and especially because we've just been through a major round of demand destruction. What has happened to the global economy since 2008?

I think a lot of PO price predictors failed to account adequately for demand destruction. I know I did. Back in 2006 I had no idea the global economy was that close to the brink, how much impact rising oil prices would have, and how much the demand would decline as the economy slumped. The economy is a complex beast with a lot of feedback loops in play.

It's easy to get caught in a "ceteris paribus" trap when making predictions, when the "ceteris" will turn out to be anything but "paribus" in the future.

The EIA reports that 2010 crude oil consumption broke all prior records, i.e., oil consumption in 2010 was greater than ever before. This is not demand destruction, just the opposite. Yes, demand has declined in the US since 2007 but the demand increase in the rest of the world has been so great it has more than compensated for the US decrease. So, there has been no demand destruction since 2007 and the price of oil is still low? Why?

First, I recommend banishing the idea that the price of oil indicates if the world is pre / post peak. It does not. Price indicates supply and demand at this very moment in time. The price will follow spikes and dips as we ride over the peak. Spikes as demand tries to increase, and dips when companies and people go bankrupt trying to pay those high prices and leading to recessions. If the financial system collapses, we could see $10 oil with no one solvent enough to afford even that low price. To really see the peak you need data on the cost of production (or some proxy, such as # drilling rigs, or meters drilled, etc).

Secondly, the current price is not low. $95 is almost 4 times the price oil traded for decades. It is a price anyone at that time would have claimed would induce a recession. It is lower than recent highs but still well into recession inducing territory.

Yes, demand has declined in the US since 2007 but the demand increase in the rest of the world has been so great it has more than compensated for the US decrease.

Oil is very inelastic. Meaning a 1% difference between supply and demand can cause a huge price swing. All of these statistics are likely to have more than 1% error, and so it is very hard to be certain where the price "should" be. I would say the OECD may have been the high price bidders. They are now unable to sustain oil prices above $80 - $90 dollars per barrel. Those countries with growing demand have small amounts of imports (relative to total energy mix) or are oil producers. They can afford higher prices.

Interesting. One could actually imagine that rising oil prices would lead to rising consumption amongst oil exporting nations. As prices rise, export earnings increase, leading to greater cash inflow, greater investment and improved economic growth. Greater growth = greater prosperity and greater oil consumption, especially if domestic fuel prices are subsidised, as they are in much of the Middle East. Did we actually see such a magnifier effect in the run up to July 2008?

Perhaps you are looking at different oil price charts than what the rest of us are looking at. US annual spot crude oil prices:

Incidentally, the price of Brent, which appears to be more indicative of current global supply & demand factors, was about $111 through the first five months of 2011, versus $105 for the first five months of 2008 (EIA).

In any case, note that we have seen a measurable decline in Global Net Exports* (GNE), from 45.5 mbpd in 2005 to 42.6 mbpd in 2010 (latest BP data, plus minor EIA input), with what I define as Available Net Exports (ANE, which is GNE less Chindia's combined net oil imports) falling from 40.4 mbpd in 2005 to 35.1 mbpd in 2010. A plausible estimate is that ANE may be down to 27 to 30 mbpd in 2015.

The general appearance of BAU is primarily due to a sky high depletion rate in post-2005 Cumulative GNE. Based on extrapolating the 2005 to 2010 rate of increase in the consumption to production ratio for global net oil exporters, a rough estimate is that we had about 45 years of net oil exports left, after 2005. Given the fact that a good rule of thumb is that about half of post-peak cumulative net exports are shipped about one-third of the way into a net export decline, a rough estimate is that about half of post-2005 Cumulative GNE will have been consumed by 2020--ten years hence.

In other words, the global Net Export "Fuel Tank" was full at the end of 2005. A rough, but reasonable, estimate is that the global Net Export "Fuel Tank" will be half empty in about 10 years, with Chindia presumably taking an increasing share of what is left in the tank.

From one of our articles:
(Showing data through 2009)

Consider the first 15 minutes after the Titanic hit the iceberg versus the last 15 minutes before the ship sank. In the first 15 minutes, only a handful of people knew that ship would sink, but that did not mean that the ship was not sinking. In the last 15 minutes, it was readily apparent to everyone that the ship was sinking, but by then it was far too late to try to get to a lifeboat.

*Global net oil exporters with 100,000 bpd or more of net exports in 2005, which comprised 99% + of 2005 global net oil exports (BP + Minor EIA data)

Yes, I know that all oil price charts show an increase in price. However, if Peak Oil had happened in 2004 as Mr. Euan suggests (and others suggested in '05 or '06), the rise in price should have been much greater by now than your and all other price charts suggest. The price increase shown on your chart does not seem to be enough if Peak Oil has already happened. If Peak Oil had already happened years ago, the price should be upwards of $1000/barrel already, not $95. How much longer do I need to wait?

Yes, your thorough and learned analysis of GNE points to Peak Oil, but sometime in the future, not 7 years in the past, as Mr. Euan suggests.

If Peak Oil had already happened years ago, the price should be upwards of $1000/barrel already, not $95.

Sorry but that is simply not correct. The price of oil cannot be divorced from the economy. If we are at peak oil today, or peaked in 2006 as JODI indicates, there is a good chance that oil will never reach even $200. The reason is because high oil prices knock down the economy. We go into a recession as we did in 2008 and we are still in that recession. That has kept demand down. If we go into a very serious depression oil may go to $50 a barrel or even lower even as oil production declines.

World oil prices are now around $115 a barrel and that is about as high as they can go without a serious adverse effect on the economy. I mean a worse effect than they are having right now.

Ron P.

So, in reality, when people such as Matt Simmons were warning of oil at $X00's a barrel they were wrong to the extent that the BAU world economy could never possibly afford that price.
When the whole thing (BAU world economy) collapses and the only people buying fuel are the Ultra-Rich for their 200 feet yachts, then that price range could be reached. I'm being a bit hyperbolic, I'll admit......

Yes Matt was wrong, I was wrong and a lot of other people were wrong. But we are not stupid. When we saw what a dramatic effect the price of oil has on the economy we changed our minds. Most of us did anyway.

I think you have the wrong idea about oil getting so high only the Ultra-Rich can afford it. That goes against the grain of everything we have learned about the price of oil and the economy since the crash. Oil will just not get that high. Even if oil production were cut in half, say by 2030 or so. The world would be in the midst of a great depression and many economies would have totally collapsed. Oil prices, in those conditions, even at half of today's production, would likely be very cheap.

Ron P.

My Educated guesses

1. Matt Simmons will be proven correct and oil will surpass $200, hopefully not going to $300-500..

The world has increased it's need more or less every year for the last 20 (excepting 08 and 09)by 1,5 million barrels. China and India have been growing gang busters for 20 years. The energy exporters (ie Mexico) will continue to increase use and decrease exports. The 300 million in the U.S who have been consuming 20-25% of commodities are now debtors to billions of people who want the U.S. lifestyle (reasonably they want heat, meat, transportation). China is using our $ to buy up commodities around the world. The U.S. dollar particuarly is in danger of sinking due to excess political promises. The Chinese middle class is now larger than the population of the U.S. and they have over 200 cities of over 1 million when the U.S. has 11.

Not only will energy rise though the roof but it will be particulary painful for those accustomed to the U.S. lifestyle (it is always harder to reduce your lifestyle once you become accustomed to some luxury) .

This summer or next or certainly by 2015 we will see just how high oil prices can go. If the U.S. military is right and there is a 10 million per day shortfall people will have to pay a premium around the world.

2. When it does rise though the roof it will mean the U.S. lifestyle will change somewhat, to smaller abodes like in Europe and smaller cars. Less distant vactions too and that will help offset the shortages. It will not be fun for many but I think we will adjust in the long run.

3. The 2008 recession was caused largely by a housing bubble that was going to explode sooner or later as the government was buying up and securitizing and pushing huge amounts of no income check loans and other subprime loans. While oil prices helped cause that pile of blocks to fall they would have fallen anyway and had the housing bubble not existed it could be argued that the economy would have turned at Much higher oil prices.

Even if you don't agree with all the above, I can prove it another way...instead of demand vs. supply simply look at the cost of production ...$20 in 2002...$40 in 2005...$60 in 2008...$77 in 2010 (source: Barclays Capital capital cost of production with 12% IRR (figures were pulled approx. from their charts). The mix of production is moving to expensive sources (ie. 1/2 to 1 billion for a rig in the ocean versus 2-5 million on land in a big change in cost).

We will see soon enough the Chinese curse "may you live in interesting times" (ironic that it is Chinese.)

That is a very bad guess :)

Long before oil hit 300, the economy would slow down so much nobody would be buying it -- demand destruction. If you think oil can go that high, explain who can pay that much and still make a profit. Maybe only the gov because they don't care what they pay for anything.

I don't think you're stupid for a minute. Hindsight Bias is an easy trap to fall into.

I suppose if civilian industrial consumption does fall off of a cliff that high, the next big consumers would be the military and they are more likely to take, rather than pay for, the oil they need.
So many variables, so little time!

Good comments, Ron.

I would add that it's very hard to know when peak oil has been reached. Is production below peak because demand is down, or because production has peaked? Demand destruction is not just from higher commodity prices. We have credit destruction and we have capacity oversupply going on at the same time.

It may be decades before we can look back and say 2006-08 was the peak. I would say we won't know until prices are relatively high and storage is being drawn down. Producers won't pump at capacity unless the price is high enough to make it worth their while, and they won't pump if nobody's buying it at the margin and there's nowhere to store it.

I'm thinking Simmons $200/barrel could be reached if nothing major breaks first(as it did the last time) but $1000/barrel would equate to about $30/gallon at US pumps. I'm not sure how much gasoline would be selling in the US at that price although the "ultra-rich" could afford it. In the UK I think I would be using no liquid fuel directly at all at $1000/barrel.

Exactly what happens next to the price and world economy, the sad part is, we are probably about to find out.

Peak oil watchers overestimate the strength of the credit economy. I highly doubt oil would breach $200 for more than an instant because it would cause way too much stress to the fragile banking/credit system as it would increase the default-deflation feedback as well as suck profits out of the system. It would also increase revolutionary pressures in the bottom half of the planet with increased food prices. see the mid east. There is a ton of "fat" in the system that could be shed, specifically in western high per-capita consumption patterns, through credit events i.e removing money from the system. Of course, this shedding adds another kind of stress and revolutionary pressures in the top half of the planet's social strata see greece and spain for example.

The economy has no strength; we are in a depression. Oil and other commodity prices are going higher because governments are printing money.

It is a tale of multiple economies: developed and developing, oil producing or not. All of the world’s population is aging and caring for the aging will divert spending away from other consumption. The developed economies have a structural problem: the productivity gains from the technological revolution are almost exhausted. The science timeline tells us that the great advances that gave us our modern understanding of the universe such as Newtonian physics, chemistry electromagnetic and nuclear theory are fairly complete. The pieces of the puzzle came together mostly in the late 19th and early 20th centuries and although we continue to discover things the importance of the discoveries is trivial compared to what we already know. There is very little unexploited technical knowledge.

Productivity growth in the U.S. slowed down rather dramatically in the late 1960s and wages have been stagnant since 1973, the same year that both absolute and per capita steel consumption peaked. Agriculture in the U.S. was fully mechanized time by that time tractor sales fell to half the 1950 level, never to return. The highway system was also mostly complete.

We have saved almost all of the labor and energy we ever will with today’s mining, manufacturing, and distribution processes. We are approaching the absolute limits of economic growth, which will soon be overtaken by increasing inputs for resource extraction. As a consequence discretionary income is falling and the economic system is collapsing. It will never get better for the developed countries. Our leaders are in denial and are ignorant of technical and economic processes, still expecting a return to economic growth that is never going to happen.

I'll pay thirty dollars for diesel in today's dollars before I buy a horse or mule-but I'll be looking for likely colts to train just in case at that point, and seriously studying the small scale manufacture of bio diesel.

I haven't used my tractors yet this week, and they consume nothing at all on days they aren't used.

Oil might concievably crash for a few months to under fifty bucks before the marginal suppliers can fill thier contracts and shut down , but oil is going nowhere but up, on average, for two irresistable reasons:geology and inflation.

Anybody who believes in a world without adequate supplies of funny money to make inflation as sure as sunrise tomorrow has only a very feeble grasp of human nature and the nature of politics.

Nominal prices will hit three hundred dollars within a decade, probably sooner, as sure as sunrise.

I have never seen an argument that CONVINCES me that demand destruction can force prices down faster than declining fields and increasing production costs can force price increases.

I do agree that demand destruction will probably have this effect in the short to near medium term.Prices in constant money may not reach two hundred dollars for a long time yet, but they will, sooner or later.

Remember what a gallon of fuel is worth to somebody who really needs it-a very few gallons makes it possible for me to sell thousands of dollars worth of crops.

Nobody is likely to outbid me for those few gallons.

Hi, Mac. The problem, as I see it, is that the customers for your "thousands of dollars worth of crops" have incomes that are even more reliant on oil, systemically, than yours is. It may be an oversimplification, but your crops are only worth what others can afford to pay.

Agree with OFM. When food rises to 20, 40 or more % of income, the tradeoff will still be oil vs labor. The energy slaves of oil will beat the others. Be along time until Babe and his Blue Ox return to the North Woods.

Agreed-but there is nothing else in the world so INTRINSICALLY valuable as food, excepting possibly drinking water.

So long as there is commerce, there will plenty of buyers of food.

Maybe I will get only a marginal profit over my expenses-perhaps a thousand dollars worth of inputs will net me only two thousand dollars in sales, and my real income might go nearly to zero, along with my customers incomes.

But farmers will be among the very last users of oil , both as fuel and as manufactured inputs in the form of insecticides, tools, machinery, lubricants, etc.

Of course at some point, the only oil available may go to the people in actual positions of raw power-the remaining police, military, mob, ultra rich, and so forth.

But there won't be nearly as many people around to serve as thier servants and footstools by that time.

Most of what you have laid out is impossible to argue with except future price.
I don't believe 'demand destruction' is the cause as much is credit contraction. The fallacy of helicopter money sticks for most but it has been credit that caused most prices to rise insanely. Credit destruction is causing the giant sucking sound that is dragging down prices of most things.

The "price" of oil is relative to price of other items you can also buy. Housing is getting cheaper or is oil getting more expensive? Because credit serves as money then falling housing prices means less collateral available for the basis of loans. Net effect - less credit available, so less money available. Housing values are dropping with the destruction of credit(money) Oil is holding steady or increasing in current dollar amount, however it's value relative to total available money is increasing at a rapid clip.

What you get to sell your crops for is very dependent to what others can pay, not what you need to charge. If they cannot pay they might steal it.

"you only need to feed tractors when you ride them" vs a horse, ox, what ever, makes me a believer in small scale gasifiers/ biodiesel/ and methane. Only when we get to the point of true 'will do hard labor for food" will that be different, imho.

Check out springboard biodiesel. They make automated batch biodiesel processors for small scale.

Full disclosure:My brother-in-law and his brother started the company and developed the technology, they sold off in 2007, but are still working there.

Marten - Maybe not just the Ultra rich will be doing good. Even the modestly comfortable will be doing OK. My sister-in-law bought a house in FL a couple of months ago. Paid $230,oo for a house that sold for $780,000 just 4+ years ago when it was first built. And she's just comfortable middle class.

Folks tend to be disturbed when they see ExxonMobil's profits. A very large chunk of those profits come from old fields/leases that XOM acquired during big economic downturns in the oil patch. XOM went on a short bying spree after the price collapse in '08. This has been the pattern since the earliest days of the oil patch. Sounds simplistic but it still true: buy low...sell high. From a point of pure self interest my partners and owner would be thrilled to see oil collapse to $30/bbl and NG less than $2/mcf. We're a new company and thus have very little production to sell. But a huge capex war chest. A price collapse would drive almost all our competitors out of business. And folks would start buying those big SUV's and all the alt companies would go under. We would be like kids in a candy shop with no adults around. And then in a sort while we would have you right where we want you: at our mercy. Hey...nothing personal...just business. My company was formed specifically because of PO...not despite it. Turns out we're a bit late to the party.

Most wealth is made by either:

Trade - in which you buy something cheaply and then sell it for a lot more, or

Capture - in which you hit the gusher, win the lottery, strike gold on your claim, invent the next iPod, shoot the next blockbuster movie,...

If you "work hard, persevere and do your best", you might make a good living. But this American meme is greatly overrated.

Right, Ron. I believe that in 2008, before prices crashed then, WalMart said it would not be able to afford all those Chinese imports it sells if oil hit and stayed above $150/bbl. So ... maybe $115 is sustainable, but not too much above that.

The price rise in 2008 was terminated by the world almost entering another "Great Depression" - which was just reduced to "severe recession" by loading up with debt and printing money. World oil consumption collapsed so much that OPEC really did have to reduce production. Now we again seem to be bumping up against the supply limits after a 3 year forced "reset". The world has never paid as much for liquid fuels as it has in 2011 so far.

Why on earth should oil be $1000/barrel (in constant dollars)? So much demand would have been suppressed by that point that I could only see a spike like that if we had a really rapid oil production crash (removing 10 million barrels/day overnight or something like that) and then it would be likely a temporary spike before the world skidded to a halt.

And once again the price of oil is not $95. That's landlocked, broken WTI.

Louisiana Sweet Crude Oil Spot Price

Current $114.10

The current slight pullback is probably simply because the price overshot on the upside after the Libyan shutdown but unless something happens to suppress demand, it looks to me as if we will soon return to the rising trend.

unless something happens to suppress demand

Wot, like high energy prices that consumers cannot afford to pay;-) Especially the unemployed ones with an endowment mortgage on a damp and cold house they can't afford to heat?

Yes, that's why I can't see the price really accelerating away to the upside but I think there could be some way to go yet barring a major discontinuity of the 2008 variety - especially if production starts to slip rapidly. I fully expect some more "discontinuities" but exactly what form they take and when they hit remains to be seen. The world has so far endured higher average oil price in 2011 than in 2008 and the wheels haven't come off this time - yet...

Future Chinese demand remains a big mystery as well.

Easy there. The chineese can't pay $200 for a barrel of oil the same way that people at the US or Europe can't.

In fact, they can pay even less. That's one reason why consuption per capta is lower...

Yet according to official stats, the Chinese people are using far more oil despite the price increases while almost everyone else is using less. Consumption per capita is rapidly increasing according to all the reporting bodies. They could be wrong of course.

Chinese won't have a problem converting to F-T coal gasification if necessary, thereby polluting their environment even more.

Hmm. I can't quite figure out the relevance of the Head and Shoulders advert, Euan.

Head and shoulders is a chart pattern in investment circles. Brent chart looks pretty similar to Louisiana sweet. Roughly speaking we have a "head" at about $130 and shoulders either side at about $115 and support at $110. If the support breaks to the down side its normally a long way down. Brent has just busted through to $109, down 4% so far on the session. Copper is holding just in no more to its support.

In real world terms, the recovery in commodities of last 2 years has been driven by easy money and QE. Now that QE is about to be switched off many expect that trend (recovery) to reverse. Other manifestations of this are slowing growth in China and Europe.

Inflationary fears are about to start receding and will once again be replaced by the even bigger fear of deflation. I'm still intrigued by that JODI data since oil consumption should be a leading indicator for state of global economy.

However, if Peak Oil had happened in 2004 as Mr. Euan suggests (and others suggested in '05 or '06), the rise in price should have been much greater by now than your and all other price charts suggest.

This very common assumption is false. Morgan Downey, author of Oil 101 does a very nice job of showing that it will take a substantial drop in oil production to reach higher prices. I highly recommend reading his blog (and book) to anyone who is just joining the peak oil discussion.

The very basic argument is this: The economy can only pay so much for energy. If the cost rises too high, the economy contracts. Energy comes in a bunch of forms (coal, gas, oil, wind, hydro, etc). As oil declines in production, it becomes a smaller part of the mix. Thus the economy can pay more per barrel.

This exact argument helps explain why China can grow consumption at these prices. Imported oil is a much smaller fraction of its total energy mix than for the US. Check this out at the Energy Data Browser

One other note that will keep oil prices down: If the cost of other energy sources rise, then the ability to pay for expensive oil decreases, holding down the maximum price of oil. Here in the US, our industry is powered by natural gas and coal. If those prices rise, we may see a decline in ability to pay for oil and thus oil may take years to reach the 2008 peak. Instead of high prices, we should expect to see growing unemployment.

Its a good question?

one suggestion is the deflationary destruction of huge amounts of capitol in 08 are not present in casual observers mind... so if you whack 1/3 of the available money in the world and the price of oil drops by 1/3 effectively the same proportion of the worlds money is chasing the oil...


In response to rising oil prices, global C+C production rose at about 3%/year from 2002 to 2005. At this rate of increase, we would have been at about 86 mbpd in 2010. Instead, we have seen flat to declining global crude oil production, in response to generally rising oil prices. From 2005 to 2010, average annual US spot oil prices rose at about 6.5%/year (with a spike to $100 in 2008, and a year over year decline to $62 in 2009). Why the production increase from 2002 to 2005, but flat to declining crude oil production since then, over an 8 year period of generally rising oil prices?

Also in response to rising oil prices, GNE rose at 5.1%/year from 2002 to 2005. At this rate of increase, GNE in 2010 would have been at about 59 mbpd in 2010. Instead we have seen a measurable decline in GNE, in response to generally rising oil prices. Why the increase in GNE from 2002 to 2005, but flat to declining GNE since then, over an 8 year period of generally rising oil prices?

I think Constellation21 makes the mistake that most people do, even those who follow TOD, namely, they confuse "all-liquids" production with C&C production. As do most MSM articles, too. All-liquids has continued to increase, and the graphs are often titled "oil production". Even Stuart Staniford does this on his blog, and I really don't understand why. C&C + oil sands = oil. ngls are a distraction used to fool the sheeple.

You obviously have alot of learning to do. Have you not been paying attention to what's actually been going on? Every time the oil price rises, it causes a slowdown in economic activity. Oil's main use is in the instant of time that it is burned in combustion engines to generate motion. If oil becomes too expensive to burn, things basically just shut down, nobody goes anywhere and goods stop being transported. This is euphemistically called "demand destruction" but really it's the real global economy, which is utterly dependent on oil, slowing down.

However, your fanciful idea of $1000/barrel oil does bring up an important point. Overlayed on the real economy is the financial economy, which is not real. All currencies today are fiat currencies, backed by nothing tangible except for confidence and the ability of banks to extend and withdraw them at will. Thereby, prices are compromised; the collapse of 2008 was the veil being lifted off the banking system. Prices do not represent market activity, they represent political activity.

So can the price go that high? Sure. But that would mean the central banks printed so much money that they created hyperinflation. I doubt they would do that. Still, there's a small chance that could happen.

In this environment, the only way you can protect yourself is to divorce yourself from the financial system and acquire physical precious metals, held outside of banks. This is pretty much the one and only way you can preserve purchasing power, regardless of what other prices may or may not be.

Of course, if you want to speculate in the markets or be the patsy and keep your money in a savings account or government bonds, be my guest.

We are on an undualting plateau and I believe heavier sour oil is currently making up for loses in light sweet crude.

Incidentally, the price of Brent, which appears to be more indicative of current global supply & demand factors, was about $111 through the first five months of 2011, versus $105 for the first five months of 2008 (EIA).

And if we look at US gasoline spot.

Average price first five months 2011: $2.81
Average price first five months 2008: $2.62

The "Broken" WTI however

Average first five months 2011: $98.21
Average first five months 2008: $106.36

Anyone following WTI would think world oil prices (and hence product) have been lower on average this year than in 2008 but that's wrong. Any indicator is better than WTI since it "broke" (unless you happen to trade in WTI).

I find these relatively long term pricing charts amazing. For those familiar with nonlinear dynamical analysis, it really looks like a bifurcation happened around 2007-7. The nature of the underlying dynamics governing the behavior of gas prices fundamentally changed. I guess peak oil would be the most likely culprit.

For those familiar with ordinary calculus, that is the sign of the first derivative of a sharp peak. On one side of the peak the derivative spikes positively and on the other side it goes negative. That's not a bifurcation, but an indication that price is a proxy for another real measure such as perceived shortage. Price is then related to the rate of change in perceived shortage with respect to time. The spikes in price can be anything depending on how fast that perceived shortage changes.

The question is whether it will happen again. Anyone that knows anything about derivatives and slope changes is that they accentuate the noise in the system, and any kind of scares can set them off.

Traders going long or short strongly amplify the fluctuations. e.g. by betting on Oil futures
Derivatives have turned the world stock markets into the biggest casino ever. Derivatives are currently 20 times global GDP. See Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP

Net global exports are even more important. That will impact oil importing countries far faster than total global production.

I don't think your derivatives are the same ones I am talking about.

" a derivative is a contractual relationship established by two (or more) parties where payment is based on (or "derived" from) some agreed-upon benchmark."

The casino is a bad metaphor. Casinos are much better regulated.

Yes. I am talking about the point a bit earlier in the plot where a relatively monotonic rise turns into large oscillations. These large oscillations are new to the scene and represent a fundamentally different dynamic, a bifurcation. I would say it is not a perceived shortage, but a shortage. The amplitude might be exacerbated by the perception of severity via speculation. You could show this plot to mathematicians with no labels on the axes, and they would point to the same point and say: "something fundamental happened here."

Bifurcation implies something splitting into two or more parts. You should at least in a hand-wavy fashion be able to tell me what exactly is splitting, and where the splitting is visible. I take it that you think that there are two behaviors executing simultaneously, which is the bifurcation you imply.

I think it is one behavior and it's just operating in a different regime.

It seems to me that you are confusing consumption with demand...

It seems to me that you are confusing consumption with demand...

Yeah, and so am I. Perhaps you would be kind enough to tell us the difference.

If we are talking about electricity there is a tremendous difference between consumption and demand. Consumption is measured in kilowatt hours while demand is measured in kilowatts or megawatts. But oil is measured in barrels per day whether you are talking about consumption or demand. They are exactly the same thing.

Ron P.

Perhaps I'm thinking of something like "unmet demand" - like those unemployed workers who don't appear in the statistics because they've given up looking for work and are therefore exerting no influence on the marketplace. Is there a word in economics for potential buyers who get marginalized out of the marketplace by high prices? Other than "losers", I mean. People whose "price elasticity of demand" has finally snapped...

It's tough to talk about this in Economics 101 terms like "supply and demand", because the assumptions built into that language never seem to include supply constraints or non-substitutability...

"Unmet demand" is tough to discuss if for no other reason than that it is limitless. There's virtually always more "unmet demand" at a hypothetically lower price.

Imagine what people in the USA might be driving, how many more super-commuters might drive how many more miles, if gasoline/diesel were 30¢/US gallon. Imagine how many more might fly to Europe several times a year at the implied jet-fuel price. Imagine towns that still own working diesel generating plants running them for base load. But alas, all the folks who might do all those things at 30¢ are "marginalized out of the marketplace" by current "high prices" greatly exceeding 30¢.

Now, one may certainly define "unmet demand" according to idiosyncratic personal value-judgment, as folks so often do. So, let's say, flying to Europe once in two years is akin to a human right, but flying there several times a year constitutes wicked, immoral overconsumption and CO2 emission except when Al Gore does it. But that gets us straight into ex cathedra assertions raising unanswerable quasi-religious questions that tend to ignite interminable flame wars. Since Economics 101 is not a religion class, it's not well-equipped to go there.

There isn't a name for "unmet demand" because that concept doesn't exist. Demand is the amount of production people are willing and able to consume at a certain price.

By the normal way econ is stated (that is an approximation of reality), if you stopped caring about price, "unmet demand" would simply be infinite. In reality, it would just be a random huge number. Anyway, it is useless.

isn't that the difference between what you want and what you get?

Yes, but the problem is that no one can measure the amount "wanted". In control theory it is what they would call an "unobservable" quantity. Since it is unmeasurable and unobservable there is essentially no way to control it and it turns into an open-loop system. That is why I think that the price swings wildly. There are anticipatory compensation factors built into the pricing mechanism when the perceived shortage is on the upswing and then lag compensation factors figure in to the price when the demand destruction sets in on small downward corrections. That explains the characteristic up-and-down price swings we see in 2008 and perhaps again this year.

Unfortunately, it is not worth doing the math on this because the estimates can only be qualitative, since we can't measure the underlying "unmet demand". Looking at price alone is a sucker's bet. This gets into game theory too, as what everyone tries to do is game the system based on moves made by other people.

The concept is not useless and your heavy handed reply merely shuts down examination of this concept. What's being called "unmet demand" is only infinite or huge in the broadest sense, and that's the concept that's useless. Unmet demand doesn't have to be referenced to "everything people want if they could have everything," and to present it this way indicates very black and white thinking that lacks nuance on this matter.

"Unmet demand" could also mean demand that would have existed just a short while ago before some change in economic conditions, and using this concept can give insight on how things have changed. For instance, buyers being priced out of the oil market over the last three years indicates a type of "unmet demand" very different from the unmet demand of people simply not having everything they want. It indicates breakdown in the existing economic system, because the unmet demand for oil seen in recent years is choking the existing growth paradigm.

Your take on the concept under discussion, which has tentatively been labeled "unmet demand," is just another version of the trivial "demand always equals supply" meme of classical economics, which is a pretty worthless analysis. (It's also an analysis that suggests everything is always okay in the economy.) The simplistic view that demand always equals supply misses the fact that some changes in the supply situation kill demand that would otherwise have been there, and such changes in supply bode ill for the economic system that's been established.

If "unmet demand" isn't even worth discussing, then why even have discussions of the social consequences of peak oil? When the human population has to fall back to a billion or fewer over the course of a few generations, we can just say that there's no such thing as unmet demand for food and security because demand always equals supply, therefore things are in harmony.

Hmmm.... so "unmet demand" could be defined as the difference in demand at price x versus demand at price y?

Demand is the amount of production people are willing and able to consume at a certain price.

No, it's not. That's quantity demanded.

Demand is the relation, at one instant in time, between the set of possible prices and their corresponding quantities demanded -- a relation, parts of which can be continuous and even differentiable functions (or approximated as such).

Again: demand is the set of all possible pairs (price, quantity), that describes the quantity that would be bought at each possible price.

Next step: demand depends on buyers' incomes and access to credit [and many other things, for example the prices of competing and complementary goods, expectations, the seasons, climate and geography, and, fundamentally, preferences].

A sudden negative shock to incomes or credit availability can decrease demand, i.e., lower the whole "curve" of quantity versus price. It's reasonable to talk about this reduction as "latent demand", at least while there is an expectation that incomes will recover (and preferences, etc. haven't changed).

Thanks. You and Silenus above have articulated my tentative thoughts on the subject very well. I was thinking about the step down in supply that prices out those at the bottom, who used to be participating in the market. They have organized their lives around the assumption of being able to buy oil within a certain price range, and now suddenly can no longer live that way. For many this creates enormous hardship because substitution (of transport capability, of heating source, of employment, of food supply...) is difficult to impossible within the time available - i.e. by the time the next paycheck is needed, by the time the snow comes, by the time the cupboard runs bare etc.

That's why I had earlier used the analogy of the unemployed who had given up looking for work. The implication was that they had arranged their lives to need a paycheck, had indeed lived on paychecks, and now no longer had one. "Latent" is definitely a better word than "unmet". Thanks.

OK, I certainly agree that demand for oil would greatly increase with large decreases in oil price...but saying that demand would be infinite is incorrect.

In the shorter term, defined as a period in which population increase is small (say <5%), oil demand will be constrained by the fact the user base (population) is relatively fixed, and the other giant constraint is that there would still be only 24 hours in a day. And people can't spend them all driving, there is sleeping, working, etc.

Also, of course your statement has some large unstated assumptions, first of which is that incomes remain the same as present.

The elasticity of demand for oil is not infinite. It probably isn't, over the shorter term, be as huge of a number as you might imagine.

Over the longer term, other constraints would still doom us, and they would do so even more rapidly.

A minor nitpick:
consumption is part of demand. One can buy oil and not (immediately) consume it (think SPR and other inventories).
Or you can spill it (Torrey Canyon et al)
But yes, im großen und ganzen you’re right.

Ethanol helped a bit, without it you would queuing in lengthy lines or even rationed for your weekly hit....
The ramp-up in production since 2005 has been amazing.
Just a quick Google...............

At peak there is more oil available than ever before and ever will be, so why wouldn't there be cars, planes etc. burning it all? There has never been so much oil available for such frivolous use.

We won't see any of the expected shifts until production actually starts its long descent. When oil prices rise and production actually declines instead of increases, then all hell will break loose. We're currently in the calm before the storm.

If peak oil were reached several years ago, why is the price of oil so low? Here in New York, it is under $95/barrel.

Well a few years ago $95 / bbl would have been viewed as extremely high. A while ago now I would have belonged to the camp salivating over the thought of $200 oil and the impossibility of losing money on oil stocks. But then it became apparent to many that high energy prices drive the world economy into the ground and kill demand causing a reaction in price.

Figure 1 Daily Brent oil prices in red and the annual running average in blue. On current trajectory, the annual average will reach $100 / bbl this Fall. Is the recent spike the new top of the oil price cycle? Or has the World economy adapted to high energy prices? Daily oil price data from the EIA.

Looking at that graph of Brent daily$, and one-year moving average, it immediately strikes me that longer-term moving averages would have a lot of content if produced. I theorize that an accurate calculation of the "length (time frame)" of the moving average which can completely smooth out a section of that graph to a continuous curve or straight line would then tell us (in the length of the moving average period required) what the exporter's + customer's real response time capability is at that time. That itself could be very valuable information, e.g. it is obvious that using such a strategy, up to 2006 the "response time" was quite rapid, likely on the order of 2 years. BUT, at 2007-2008 the response time suddenly increased significantly. Could such a strategy also be used to separate out supplier response time (price rises upward from the smoothed average) v.s. customer's response times (price drops below average) ??

Also interesting might be shorter-term moving averages, perhaps operating on a smoothed version of the daily or even hourly data, to try to identify the response times and changing response capabilities of the shorter-term input mechanisms to the markets. (Tanker travel rates, layups, consumer habit changes...) Perhaps usless at known discontinuities such as Libyan revolution starting....

It's also fascinating, to me as a Canadian who's sort of followed developments in the oil sands, to note that (now surprising to remember) the companies developing there were investing and building flat-out through much of the early 2000's, but Brent price was then below $30 / bbl. Did they know the price hike was comming? And why, now, with the price apparently sustained near $100 / bbl, have they backed off significantly in their developments? Is their stated "we'd prefer a cooler pace of development" simply a desire unrelated to price? Agreed, materials prices have increased significantly, but not that much compared to the commodity price change. Labour shortages should also be solvable by means other than halting development....

It is indeed pertinent to note that billions were spent on developing the tar sands shortly after we had $10 oil in 1998. Someone must have had detailed insight to how this game would play out. The second part, cooling off the pace - could that be linked to what has been learned, and that is that high energy prices feeds development cost inflation. Or have they looked into our crystal ball and not liked what they saw?

Did thay make a bet among themselves that the Saudi's wouldn't be able to hold the then-stated $25 / bbl target price? I wonder where / how high they then predicted the "Saudi target" and the real market to go? Perhaps they predicted $50 and are now worried at $100?

Or did they forsee the dying of the British North sea fields, and perhaps some other minor declines, causing a rise to profitable $50, but were shocked to see that the Saudi's could no longer control the price (with those implications) and are now worried about entire world economy?

How about this for an example of why they made the bet on the tar sands when they did: two nights ago I finished logging a well that cost $6 million to drill. Why did we drill it? Because it appeared to have a fair chance of producing $40 million of NG and NGL. And that's why our owner wrote a check for half that cost with a group of partners supplying the rest of the capex. Heck...who wouldn't invest $6 mill to make $40 mill.

Now upon finding $40 mill of hydrocarbons folks on TOD would be asking how we knew there was such a profit to be made by this investment. And how freaking smart the Rockman must really be. But yesterday morning I order a cement retainer run into the hole and to plug it. It was a dry hole...not $1 of producible hydrocarbons. Needless to say it's very easy to wonder how someone was so smart to make such an investment or how dumb they were to waste money on such a failure...after the fact.

The folks who invested in the tar sands were given a profit projection of the project and pulled the trigger to go with it. Now they look like really smart folks. And if oil were selling for less than the cost of production from those deposits what we be saying about their intelligence today?

An extreme example: The guy that won the $200 million lottery didn't do so because he was smarter than the 30 million folks who didn't pick the right number. He just made the right choice.

Agreed, there's a lot in what you say, especially regarding smaller operators. However, don't the bigger operators demand a lot more certainty especially on much bigger chunks of money? Most of them won't even do exploration, preferring to let you guys find it, then buy you out, right?

lenny - You mean a big operator like Devon? Last Deep Water GOM well I worked for them was a $158 million dry hole. And how about their decision to spend $billions in the shale gas plays and then watched NG prices drop and nearly wiped them out? In the spring of '08 they expanded their SG rig count in E Texas to 18. And 6 months later they paid a $40 million penalty to cancel contracts on 14 of those rigs.

And don't misinterpret my feelings about Devon: they were probably the smartest and hardest working group I've been involved with for the last 36 years. Most know that Babe Ruth was home run legend in his days. Not nearly as many know he was also near the top of the strike-out leader list during this time also.

Yes...we exist to turn $'s into oil/NG in the ground and then flip the entire company to the highest bidder.

As we say in the oil patch some days chicken...some days feathers.

I don't really understand why this is something special.

Take the case of the farmer who decides to plant a field in a temperate climate. He invests in seed for the growing season. If the rains come as expected he makes some money. If he hits a drought, then he suffers a loss.

Over time a statistical trend sets in and as long as more periods of rain than drought occur, the farmer can continue on.

Now go to the oil situation. A country pools its resources and makes calculated bets on how often to drill. If few enough dry holes occur, then the advantage stays positive. If you don't assume a collective effort (akin to a large group insurance policy), then of course somebody will lose their shirt every once in awhile. The difference is that oil exploration does not classify as a stationary stochastic process, like the seasonally-adjusted weather is (ignoring fast climate change). Over time, the oil situation can only get worse, and the prospectors are serving as scouts in a game of stratego or pawns in a game of chess, perfectly expendable pieces to evaluate the waters.

That is part of the reason for the existence of a tome like The Oil Conundrum. It lays all these statistical arguments out so that people can make up their own mind on how many more discoveries we can expect and whether it is worth it to keep paying for seed money.

Without these arguments in place, lots of people will continue to believe that it is just a matter of dumb luck, "drill,baby,drill", or engineering talent on whether we will continue to find oil.

Rockman tells the story in his words.
I tell the story in the language that a statistician or actuary would.
The two stories essentially align, but which way of thinking is best to set policy?

Of course we will eventually run out of pawns willing to risk losing their shirts. What then? Do we start to collectivize the efforts, or do we do something like privatize the gains and socialize the losses? At some point we may reach a tipping point where real subsidies start to kick in. For the time being, enough money is to be had that the private operators will continue to give it a go.

The thing about the oil sands (more accurately, bituminous sands) is that there is no geological risk. If you drill a well in the oil sands, you have a 100% chance of hitting oil (more accurately, bitumen). The only risk is economic risk - can you make a profit producing it at current and future oil prices?

The companies who develop oil sands projects have become extremely good at minimizing the economic risk - they have very deep pockets and there is little or no chance of them running out of money in the short term. They also have become very patient - they are willing to wait years for a payback.

And finally, they have a very good idea how much conventional oil is left in the world, which is why they are developing non-conventional oil.

What kind of noises were they making in 1996, though? That would make a great article here - media excerpts from that era, a chart of how production forecasts built up as the price increased, etc. Were they forecast capex and/or Brent to stay flat for the next decade, as I'm sure the EIA/IEA were? This chart is too big to post here but it shows oil sands production broken out by individual mining operators; until Shell Canada joined in the fun in 2003 it was strictly Syncrude and Suncor: File:Oil sand production from mining.jpg - Wikimedia Commons

The oil companies tend to play their cards rather close to their chests. They don't usually say in public what they are really thinking in private.

Suncor started production in 1967 and Syncrude in 1973. These were the early pioneers of the oil sands industry, and of course the early pioneers take all the arrows. In the long term it paid off because Suncor is now the biggest oil company in Canada, and Syncrude (a consortium of seven companies) produces about 350,000 barrels per day for its partners. Shell was a late entry, starting operations in 2003, but its production is now about 250,000 b/d and oil sands have been reported to be the most profitable part of the company.

Each individual company has its own strategy, but total oil sands production is currently running at over 1.5 million b/d, and is expected to double in the next 10 years.

Oil sands are Suncor's specialty, though, and their 12% in Syncrude is shared by 36.74% from "Canadian Oil Sands Limited." Very much focused outfits, not long on vertical integration perhaps, although Suncor of course do a bit of retailing etc.

NYT reports from 1994: BUSINESS TECHNOLOGY; Unlocking Oil in Canada's Tar Sands - New York Times

For millions of years, crude oil has been locked within the tar sands that abound along the Athabasca River, 300 miles north of Edmonton, but until recently it looked doubtful that the estimated 300 billion barrels could be recovered economically.

Now a couple of companies representing a broad array of Canadian, American and Japanese interests have shown that such unconventional fuels can not only make money but also augment Canada's output of domestic conventional crude, which has declined over the last 20 years by 500,000 barrels a day.

Mmmm, Syncrude just threw money down a hole - series of holes - for 21 years straight? Those are mucho grande cojones! 'Course it also points out that Suncor and Syncrude were 69% and 55% owned by Exxon and Sun Oil, respectively. Now it all makes sense.

They also mention more operators: Shell at Peace River and Imperial at Cold Lake. Wikipedia rightfully didn't include them as part of the Athabascan oil sands, although to the rest of the world it's not much of a distinction.

Short, snappy history lesson:

Suncor originated from Sun Oil Company of the US in 1917, when it established a Canadian branch to supply fuel to Canada during WWI. In 1953 Sun Oil established Great Canadian Oil Sands (GCOS) to develop the oil sands.

In 1967, GCOS started the first Canadian oil sands plant, producing 45,000 b/d. In 1995 Sun Oil sold all its interests in Canada to the public and parted ways. Sunoco in the US is now a completely different company from Suncor in Canada.

In 2009 Suncor bought the formerly government-owned Petro-Canada and became the largest oil company in Canada. It currently produces about 600,000 b/d in total, of which more than half comes from the oil sands. See Suncor Energy History

Syncrude, on the other hand, originated in 1964 as a consortium of several oil companies to develop the oil sands, and opened its first plant in 1978. It currently produces about 350,000 b/d, about the same as Suncor - however Suncor is one of the Syncrude partners. See About Syncrude

The Peace River and Cold Lake oil sands are different oil sands deposits than the Athabasca oil sands, but they are out there and companies are developing them. As a matter of irrelevant interest, there is a fourth major oil sands deposit in Canada, on Melville Island in the Arctic Islands, but I don't expect to see that developed in my lifetime.

Thanks, RMG. Had forgotten how that all pieced together. I see that oil sands stayed <100 kb/d until the end of the 70s, then took off on a trend that lasted until Shell Canada's entry, or maybe a bit before - when it took off on the current, much stepper slope up. That 1980-2000 trend didn't even break off when the price crashed in '86. Chart for those interested: IHS CERA: The Role of Canadian Oil Sands in U.S. Oil Supply - Seeking Alpha.

Suncor Energy have 37 more videos up at YouTube too, I notice.

I'd like to invest in the oil sands, but I'm trigger shy.

Part of the reason is the chaos in the markets - the signals are completely distorted, and I don't trust them.

Oil could go to $150 or it could drop to $60. And we aren't talking about seashells here. It's oil - the juice that the global economy runs on.

I'm also wondering if the 2008 spike to $147 wasn't a shot across the bows of the Saudi's by the large hedge funds? Sort of a first-time warning / proof of weaponry, like the bomb on Hiroshima or the hedge-fund's run on the Swedish (?and Canadian) currency(ies) in the 1990's. Perhaps the Saudi's really do have all the capabilities they claim, but are deterred from using it too obviously. If one were an owner (or a loose conglomerate of owners and hedge fund managers) of a lot of oil and a lot of investment cash, that would be the thing to do, right?

I'm also wondering if the 2008 spike to $147 wasn't a shot across the bows of the Saudi's by the large hedge funds?

No! Large hedge funds do not set the price of oil, nor do they have any control of the price of oil whatsoever. Hedge funds, just like all speculators, try to make an educated guess as to which way the price of oil will move. Just about as many hedge funds were short as long during the price rise. Some lost their shirts and some made a bundle. Then the price crashed and the reverse happened.

Of course the name "hedge fund" is a misnomer. Hedge funds do not hedge at all. They are large groups of investors, or gamblers would be a better name, that make bets on which way the price of a given commodity will move. They use computer algorithms that when back tested would have made a lot of money. But in real time they seldom work out that well. Just as many lose money as make money. And just about as many are short at any given time as long.

Ron P.

Maybe I got the right action but the wrong actor? Your disclaimer fails to fit the Swedish currency crisis.

The way I understand it, the hedge funds do not hedge against a particular investment, but they hedge against movements in the overall economic market.

So what the hedge managers will do is to bet that specific investments will go up but then make additional bets that completely unrelated investments will go down. They will make lots of money if both bets are correct, but they will cut their losses if the overall market crashes, as the one they thought would go down is really going down. That's why many of the hedge funds survived the 2008 crisis, as that is just what they were intended to do, account for unpredictable downturns.

Just wanted to clarify my understanding. (Not that I would invest in these things)

Hedge funds can do all sorts of things, that is sort of the point of them.

I don't know where Ron got the idea that "hedge funds do not hedge at all". Every hedge fund that I know of uses hedges to some degree. Perhaps he meant that because they neither consume or produce oil as part of their operations, their oil investments are just that: investments, and not a hedge against their operational expenses or revenues (the way a farmer or General Mills would use grain futures, or an airline would use oil futures).

The way that you describe using hedges is probably the most common way that they are used. To give a simple example: let's say that I run a tech equity hedge fund. I pick my favorite 20 stocks in the NASDAQ and take long positions in them. To hedge against a general tech market downturn, I take a short position in QQQQ (which emulates the NASDAQ index). Therefore, my fund will do well if my 20 chosen stocks outperform the NASDAQ index, even if those stocks decline due to a general tech decline.

(Not that I would invest in these things)

You may have invested in "those things" and not know it. A lot of pension funds invest in hedge funds. There are plenty of schoolteachers who are hedge fund investors but don't know it.

Someone must have had detailed insight to how this game would play out.

Ummm...pipeline capacity - diluent in, product out. Cost inflation due to regional labour market pressures based partly on municipal infrastructure and housing shortfalls and partly on materials shortages...

Insufficient IMHO, even if you added in the most serious cost change, which was the strengthening of the $Cdn v.s. the $US, still a problem. Average costs today don't reflect the low costs of new projects using SAGD and cheap nat. gas. Upgraders in areas less costly to build can eliminate costs of diluent if those are significant, and pay themselves back from the difference in market price for the products alone.

As reflected in the current divergence between WTI and Brent, oil sands operators are foregoing a lot of profit due to limited pipeline capacity. Why would they ramp up production at a rate greatly in excess of the rate at which pipeline capacity is expanded? And do so at top dollar?

The operators employ a lot of talent perfectly able to foresee a problem like this.

Unsurprisingly the campaign to expand pipeline capacity is underway with money flowing to 'right-thinking' 'think'tanks and other means to overcome public resistance to these pipelines, and to the whole foul effort in Alberta's north.

I believe we are still focusing too much on supply and demand as a driver for oil prices. Inflation, as in money supply, is the key. As money supply will now be removed (end of QE2), oil prices are likely to fall rapidly for the coming months (certainly denominated in USD).

21 - You have to go back to the basic meaning of PO: the max rate global rate that oil can be produced. PO has nothing to do with oil prices per se. The world may never see oil rates higher than we see today yet in several years oil could be selling for much lower than it is today. The price of oil today is determined by demand more so then supply IMHO. The PO camp did not postulate "skyrocketing" oil prices. Some folks who thought they could predict the supply/demand/pricing dynamics many years out might have made such offerings. Right now I don't have much confidence in such predictions the next year or two out. IMHO the price of oil in the future will hinge much more on global economic activity than production capabilities. And, for what it's worth, I never have subscribed to the concept of a "PO date". For me it was always going to be a plateau that will have apparent highs and lows. Apparent because a down turn in global activity might reduce global production rates which would hide/alter the PO time line. If we are running into a global recession (including China) we could see oil well below current prices in the not to distant future. But that wouldn't change PO. In fact, even if the global economy can absorb current prices and go forward PO may not be the limiting factor down the road. As the producing countries consumer a greater portion of the output internally we may still be on that bumpy PO plateau but may be sliding down the PE (Peak Export) curve. IMHO PE and global economic growth will determine future oil prices. And I don't have a guess how those dynamics will play out over the next 5 years let alone the next 30 or 40 years.

Also, IMHO, there is no such thing as "cheap" or "expensive" oil. The price of oil is just that: the price. How that price effects an individual, a nation or the entire globe produces such subjective qualifications. For a struggling African nation with few energy sources $50 oil is very expensive. For a country like China $100 oil doesn't appear to be holding back their expansion. Personally, current "cheap" gasoline prices don't hinder my driving desire at all...lucky me. But for millions of folks gasoline is rather expensive. So, where do you sit 21...expensive or cheap?

The price of oil today is determined by demand more so then supply IMHO.

You mean there's a feedback that keeps price at a level the economy can handle so all those MBD get sold? True.

The PO camp did not postulate "skyrocketing" oil prices.

Are you excluding TOD posters? I remember numerous posters suggesting oil could go as high as 500-2000 dollars a barrel! I was under a different moniker then, but kept posting that the price would have to be in line with what the economy could handle, and would therefore probably never exceed 200 a barrel. And so far that has turned out to be true, as there is indeed a feedback in determining price.

I was under a different moniker then, but kept posting that the price would have to be in line with what the economy could handle, and would therefore probably never exceed 200 a barrel.

I have been posting exactly the same thing but that was after the crash! I, like a lot of other people thought oil could go to #300 a barrel or even higher. I wuz wrong! But it took the crash and recession to educate me that the price of oil cannot be divorced from the economy. The higher the price the worse the economy gets until the price is knocked back down again.

I find it shocking that a few people have not learned that lesson. But I think most TOD posters, except for a few newbies, are well aware of that fact now.

Ron P.

The higher the price the worse the economy gets until the price is knocked back down again.

Agreed, and the bigger picture is about learning. It's fun being part of a group of people that are peak oil savvy, but also willing to hone that knowledge as the complexity of how that influences the economy occurs.

I wasn't so much trying to make anyone wrong, rather taking issue with the idea of the peal oil community not projecting extremely high prices if it included TOD. Now everybody knows there are limits to price, the limit the economy can handle, because no one selling the stuff benefits if it nullifies purchasing power.

You might have been wrong, but only because the Fed hasn't printed enough dollars yet! Just wait.........

Earl - "Are you excluding TOD posters". Of course not. Anyone can post on TOD. Doing so doesn't put them in my "PO camp". My Po camp understands exactly what PO is and how unpredictable oil pricing really is. That's why "we" laugh at those folks.

As you say, the feedback loop seems rather obvious at this point in time. And as far as: "numerous posters suggesting oil could go as high as 500-2000 dollars a barrel". Yes...and there are still folks who seriously beleive we didn't land on the moon. Quick: name me one group anywhere that doesn't contain some lunatic fringe that doesn't represent the vast majority. Except for Texas, of course. We have no lunatic fringe...everyone one has a seat at the big table. LOL.

Rockman, I was responding to your statement,

The PO camp did not postulate "skyrocketing" oil prices.

by stating,

Are you excluding TOD posters? I remember numerous posters suggesting oil could go as high as 500-2000 dollars a barrel!

and now you're saying,

name me one group anywhere that doesn't contain some lunatic fringe that doesn't represent the vast majority.

There's no need to come up with a lunatic fringe, because it was many of the regular posters on TOD that projected what are now recognised as oil prices too high for the economy to handle. Even Darwinian admits to having suggested 300 or more. And if TOD and its regular posters are part of the peak oil community, then your original statement at top of this post is inaccurate, but its just one statement and you are posting very interesting stuff all day long about technical stuff I wish I knew more about.

How are things in the field? Did you decide to revisit some of those old well sites to extract 5% more? Hopefully that is or will pay off. Best of luck on it.

Earl - TOD has its share of lunatic fringe...present company excepted, of course. LOL. Classifying them as LF might be a bit harsh. But essentially anyone who doesn't see things exactly as I do falls into the LF category...just a matter of degrees. LOL. But I don't have a problem with them per se. Did I ever think $300 oil was a silly expectation? Heck yeah. But I view such positions as opinions...not facts. I'm always ready to offer corrections if I see a tech error. But I don't see such predictions/opinions as any less valid then mine. The point I was trying to make is that it's not very useful to take an extreme position of a few and apply it to a group in general. Nothing really heavier than that.

Yep...trying to get my horizontal re-drill of those old oil fields started. We had been focused on deep NG/NGL plays but there just aren't enough conventional prospects. If you take my 2012 budget and expand it to take into account we usually only own 50% of each deal I need to find $300 million of drilling projects next year. At an average cost of $6 million/well that 50 prospects. This year we found/drilled 8 so far. Maybe 3 or 4 more before the end of the year. While my budget might seem large it's just a very small percentage of what the oil patch will spend in the US. As I mentioned the other day this is the prime reason all the public oils are going so hard at the unconventional plays like fractured shales : There's not enough conventional prospects left to support even half the companies out there. That's why it still amazes me that folks still question why domestic public oils aren't out there telling the public about PO and that most of these companies have no long term future. Would that inspire folks to bid their stocks up? And even while they use the shale plays to pacify Wall Street these targets aren't infinite either. If oil prices stay up and NG prices rebound drilling will keep expanding. But all plays come to an end. Might be 15 or 30 years down the road but they will end. But more importantly they will have a small effect on PO IMHO. And that's where I think some folks get confused by the unconventional drilling activity: it's not because of PO but in spite of it. Chevron can run its cutsie ads about energy independence for the country but that's just a cover for their desperate need to keep the valuation of the stock up.

As I mentioned the other day this is the prime reason all the public oils are going so hard at the unconventional plays like fractured shales : There's not enough conventional prospects left to support even half the companies out there.

Interesting in the field perspective, and more news PO is putting the squeeze on.

Chevron can run its cutsie ads about energy independence for the country but that's just a cover for their desperate need to keep the valuation of the stock up.

I cringe when seeing some of those Chevron ads as well as BP's and ones put out by the Dept. of Energy, suggesting to people all is well, when in fact it's absolutely the opposite. Just plain ol PR at its worst. Cajoling the masses into complacency - just relax in those deck chairs folks - ignore the few lowering lifeboats.

Best of luck on those 8 drilled and the others to come, for you and the rest of us.

Perhaps I misunderstood you. Are you saying that there isn't a lunatic fringe in Texas because the lunatics are in the majority and the sane people are on the fringe?

ts - You ever see that movie where everyone is insane but the hero? And they thus burn him at the stake. Nuf said. LOL

there are still folks who seriously believe we didn't land on the moon

I knew one of those. I was able to completely change his mind, and how I did is a lesson... in propaganda mechanisms, I suppose.

Every time he said the moon shot was faked, I 'went off' on it. I went on about how the moon shot was real, and look at it, at the amount of money the government spent on that, and for what? Then I would moan and groan about the uselessness, the COLOSSAL waste of hard-working taxpayer's dollars, and all because a bunch of Russian and American politicians got into a pissing contest. And so on, and so forth.

Now, this wasn't a daily discussion or anything. It came up by chance a couple times a year. I was careful to do my spiel each and every time it came up. Three years later, he became convinced I was right, because only a government would have idiocy and arrogance to waste such a huge amount of money just to, essentially, save face.

(I don't think it was a waste of money in truth. I just wish NASA had a higher success rate.)

So by repeating the mantra, over and over, with a little time to think about it and decide it sounded reasonable the guy did a complete 180 in his opinion.

Judging by the religious followings in this country, the average person shows a marked predilection for sweet lies as opposed to sour realities. I'm sure the next energy miracle will be just around the corner for nearly the whole next century. Sort of like telling the head from a decapitated body, “Don't worry, the ambulance will be here soon.” We will hope and dream and take ineffectual action on spurious grounds as our society slowly loses consciousness.

cheap oil?
Adjusted for inflation (2008 dollars) the price of oil per barrel has been $20 for over 100 years see

In the US every $10 per barrel increase translates to about 25 cents at the pump. In Florida this translates into over $20 billion a year extra sent to oil producers.

why is the price of oil so low?

Because the economy cannot stand a higher price. If the price rises, demand drops and so does the price. It is in fact the limiting factor on the economy now (Liebigs Law). The price will rise, but only slowly, as oil moves up the value chain. If there is some sort of economic crash, all bets are off; and I have no idea what will happen, other than that a much bigger fraction of economic activity will be disrupted.

Highways are jammed with gigantic autos, I'm covered in plastic, and the sky is crowded with jets. How can this be if Peak Oil was reached almost 7 years ago?

That's exacly what you should expect at peak oil production. Peak oil production will obviously coincide with peak automobiles, peak air travel, and peak garbage. Why would it be not be so?

You probably won't notice anything different until oil production has declined year-over-year by a percent or two for several years in a row.

If peak oil [is true], why is the price of oil so low?

Choke. Gasp.
Wipes post nostril coffee off computer keyboard.

$95/barrel is not, historically speaking, a so low it makes your nose blow number.
[ i.mage.+]

Some of us remember a day not too long ago when Captain Capitalism (a.k.a. Steve Forbes) and his sidekick, Yellow-spine Yergin promised us "the price" would soon return to $20/barrel thanks to the magic workings of Invisible Hand. (Or to $36/barrel if you like to count in Yergins)

That said, "price" has nothing to do with actual production.

Peak Oil could be reached, and maintained, even if "the price" drops to $10/barrel.

If your average Joe-with-no-job cannot afford gasoline, then he won't buy gasoline.
And if he can't get a job cause he can't get gasoline, well too bad; that's the way the system is rigged right now.

You have to decouple in your head that false narrative connection between "price" and "production".
One does not logically imply the other or vice versa.

World oil productionis on an undulating plateau.

There are many graphs you can google that will show this.

So glad to see this kind of thinking maturing. Back in 2008 I said as much in a comment to Gail's post: The Connection Between Financial Markets and Energy - Open Thread
Posted by Gail the Actuary on September 15, 2008

The basis of this thinking is extremely simple. Economic work requires input energy of the right quality. Reduce the amount of energy input and you reduce the amount of work. All else follows.

Question Everything/Biophysical Economics

George, its a very good comment from 2 years ago. We chat about a lot of this stuff on on TOD email list, especially Nate. Its often difficult to know who to accredit with the original ideas so if you had any more links, fleshing out these ideas it would be good to have them.

Its incredibly hard to get lay people to understand that when they "go to work" it is FF energy slaves that are actually doing most of the work for them and that when these energy slaves go on vacation that pensions and social services are put at risk.


Thanks. The sum of work I've been doing is at the QE/Biophysical Econ link. It really is good to see the evolving clarity regarding the issues of economics and energy.

I will echo Euan's comment.
Clarity should be the name of the game.
My background is food and agriculture and a post-career interest in the food economy of Britain as we climbed the coal-curve in the 19thC. China can do a similar coal-climb for a while and increase per capita energy use, but I see that as being a late variation on top of your underlying understanding. Has China, in your view, made it easier to disguise the situation and give an albeit temporary rationale for the disconnect between money and (energy control)information?
From your words 2 years ago ...

... 3) The guidance of energy flow through the work process requires knowledge (of the process and its control model) and information regarding the energy potential available.

4) In the economy money acts as an information token representing the availability of energy to do work at the micro level.

5) Monetary policies have been crafted to disconnect the meaning of money as energy available to do useful work; money is now a commodity a-la Friedman. Money no longer serves as a measure of available energy. Though its flow, counter to actual energy flow, still acts to guide presumptive energy flow. ...

Has China, in your view, made it easier to disguise the situation and give an albeit temporary rationale for the disconnect between money and (energy control)information?

Good question Phil. China gets the spotlight for now with India pulling up the rear, but as you suggest this is probably only temporary. Globalization did a lot to hide reality by shipping labor inputs from high energy consuming populations (particularly the US) to those that got by on far less in the past. This allowed corporations to keep the illusion alive, profits, etc. But things are changing American consumers are poorer for loss of jobs and so will shut down buying Chinese-made goods. Chinese workers are getting used to consumption of stuff and are demanding higher wages to support that lifestyle. They have already gotten into the net import of energy mode in order to support internal consumption since export goods to America have been declining. We know where that goes.

On another note, though, I think the greatest distortion between money value as a guide to control the flow of energy (work) and what we have now has come from the incredible growth in the financial services markets. We know how fractional reserve banking starts the distortion, but the speculative stock markets and now the derivatives markets have grossly distorted the meaning of money. We see this in the growth of GDP where a large and growing percentage of the recorded transactions counted as income come from financial services. Those services just move paper and bits around without actually doing anything. They create pieces of paper, assign values to them, and then trade them, recording the trade as income (and then take home hefty bonuses from having increased sales!) Yet people are willing to trade dollars for having someone move those numbers around so as to make it look like they are helping the customer get rich! The ponzi scheme that is finance based on debt based on growth (to retire) has become a significant portion of GDP making economists grin and the rest of us take on two jobs to break even!

Thanks George,

Don't comment much lately. Follow your blog site weekly. Your May 19, 2011 post was one of the most sobering articles I have read in years. Thanks for your work. Got a couple of friends who are also fans of your work, sorry we provide so little feedback, but please know your stuff is appreciated.

Hi Rube.

Thanks. I don't do much commenting lately simply because I am devoting more time to my systems science book and to the blog. Maybe this summer I will have a bit more time to read more TOD articles and put in a word here and there. As the reality of peak gross energy (from oil) hits home I think more people will be asking about the consequences of post-peak scenarios. Moreover, people need to pay attention to post-peak NET energy which is what really counts.

Sober is what we need now!


This focus on C+C production is misleading.
If NGL and biofuels
can be used to make up for petroleum in 'petroleum products' like gasoline then they reduce demand for petroleum just as effectively as increasing oil production. No doubt the response is that biofuels and NGL cannot make up the gap but biofuels have shown good growth.

World biofuel(2009) use expected to double by 2015

The reason for concentrating on C+C is to see if oil production is actually declining(i.e. thus making the Peak Oil point) but as a practical matter this alone should'nt cause the supply-demand sensing of markets to collapse.
As far as the policy makers go, they are ruled by money so it's hard to see how they are expected to respond.

I would say that focussing on C+C is simplifying but no misleading. It would be misleading had I not mentioned that bio fuels, NGL and refinery gains were excluded from this analysis. I dealt with the "refinery gain" myth in the post. It then needs to be added that biofuels by and large are not primary energy and the low ERoEI necessitates that only the net energy should be charted (same applies to all fuels but where ERoEI is high adjusting for net energy is trivial). And with NGLs there is no firm convention on classification. Much of the NGL coming out of the Middle east is ethane - more of a gas than a liquid and more valuable as petrochemical feed stock.

Sure, the energy flows from these "new" supplies are helping to ease the pain. I think peak oilers are entitled to focus on "honest to god oil" (Darwinian) at least once in a while.

My point is that the public doesn't buy crude oil, they buy petroleum products.
'What happens when production capacity is less than demand?'
An economist would say they substitute a different but similar
raw material not that they get off it.
The obvious substitutes for petroleum feedstock is natural gas and biofuels. Natural gas(and even coal) can be used to produce methanol at high efficiency or at a higher EROEI in corn ethanol and both can fuel flexfuel vehicles with a reduced range.
In Iran, India and Pakistan CNG is used directly, reducing
linkage of petroleum to fuel demand.

The endless watching for the Peak Oil moment, and inevitable the
Terminal Demise of Civilization may be less educational that you hope.

An economist would say they substitute a different but similar raw material not that they get off it.


No, really!

The fundamental theorem of demand states that the rate of consumption falls as the price of the good rises. This is called the substitution effect. Clearly if one does not have enough money to pay the price then they cannot buy any of that item. As prices rise, consumers will substitute away from higher priced goods and services, choosing less costly alternatives.

For someone who frequently disparages other posters' comprehension, you're not doing very well here. Oil, for example, is commonly used for transportation. As the price of oil rises, the substitution effect is seen in many ways, including for example more walking, cycling, and travel by rail or other vehicles powered by hydro-electricity. It may involve doubling up in oil driven vehicles. You really have to stretch your meaning to call this the substitution of one raw material for another. Yes, the substitution may involve a shift from oil to natural gas liquids, or it may not.

As prices rise, consumers will substitute away from higher priced goods and services, choosing less costly alternatives.

Only if valid substitutes exist. In the case of crude oil there are no substitutes (see Euan's point about tar, biofuels etc not being a primary energy source and their low EROI's etc). Therefore consumption declines - exactly as we now see in the major economies. And that is the exact point of the entire Peak Oil debate. Crude oil is a critical commodity that no combination of anything else can replace. Neoclassical economists disagree, but I have long since lost respect for their views on Peak Oil.

The endless watching for the Peak Oil moment, and inevitable the Terminal Demise of Civilization may be less educational that you hope.

Well I'm assuming the "you" means me, and you got this totally wrong. This, so far, has been one of the better threads I've participated in for a while with a wide variety of valid opinion (not so many facts) on show. I am more interested in trying to get a handle on exactly what is going on and what may be done about it than in voyeuristic observation of the demise of humanity.

In Iran, India and Pakistan CNG is used directly, reducing
linkage of petroleum to fuel demand.

Well, that's the theory anyway. The IANGV has detailed numbers year-by-year on penetration of NGVs into vehicle fleets, and provide 2005 country totals to boot; while the top 10 for NGVs as % of total is full of small fry fleets like Armenia and Bolivia, you do have Pakistan, Argentina, and Brazil at #3, #8, and #10 respectively, with respectable sized fleets at:


For total vehicles; and NGVs at:


Of those totals. Yet EIA shows an increase for Argentina in consumption of gasoline for 2006, from 70 to 82 kb/d, the latest year I have on a spreadsheet (EIA site seems to be on the fritz at the moment). Pakistan has basically wobbled around 26 kb/d since 1992. For 2006 Brazil was pretty much flat at 308 to 309 kb/d, but increased a bit post 2000 - after skyrocketing the previous two years, and then crashing...quite an odd profile. They of course are very keen on their flex fuel as well.

All of this doesn't quite paint a clear picture of NGVs displacing gasoline 1:1; of course I'm leaving out diesel - or LPG; and assuming that the IANGV's data is to be trusted - IIRC it's another NGO that sends out questionnaires every year, and here's the results. Kudos for making them available, too.

Perhaps these NGVs are just helping them to expand their bus fleet - certainly MT is about all I've ever seen CNG used for in the US, outside of the odd Honda.

I noticed today that a county repair vehicle was natural gas powered.
US school buses are being converted with stimulus funds.

It would seem to be a good idea if local governments got off a dependence on imported oil.

From what I've read diesel is ca. 5% of the typical district's total budget. Lots of hits from 2008 and the last few months about moving to propane, too.

Peak oil will happen on C+C. You can add LNG, but not renewables.

Renewables are part of the solution, not the problem.

Hi Euan,


I think governments, even if they are aware, are in a bind.

I am breaking no confidences here, though names and firm are omitted:

Some months ago I gave a lecture entitled "Understanding the Present: Peak oil, food, credit and the end of growth". A while later I recieved an email from a relative junior, at the request of his boss, for a copy of my presentation whose intro blurb had been passed to them. It was from a UK wealth management firm, and i was informed the boss was a regular contributor to the FT and other well known publications. This was included in the email: "We are firm believers in themes mentioned in your below email, namely Peak Oil, the Fiat Monetary System and the future of global growth". Note, the boss has not mentioned these concerns in his articles (though his clients may be more fortunate). Those in the know will cash out, if it becomes a stampede, the already highly vulnerable system will crash. Such a crash could be catastrophic.

Any authority (government head, major institutional head) who shouts 'fire' could well initiate such a stampede.

In conversations with officials, I focus on what can be done in the background-monetary management and preperation, supply-chain shock planning (eg food security), critical infrastructure resilience, and education. Mostly this is centred around the risk of a large-scale systemic banking collapse. Of course this is very deficient-but there are other folks (like those on the Oil Drum!) who can move forward where politicians and civil servants fear to tread.

In reality though I wonder if we're making any difference interacting with government. There are certainly senior civil servants in some countries and in the EU who are worried-but from conversations they find it hard to convince political leadership. And serious planning tends to require political buy-in. I have heard nine Irish government ministers mention peak oil over the last five years, none (including a green minister) understood its urgency.

By the way-we're (Feasta & risk-resilience) having a 'top-down' scenario/ shock planning event in a few months if anybody in TOD is interested. It's mainly figuring out what's a government to do, what are the risks of them doing it, and what does the role of informed civil society (Transition, Feasta, ASPO etc).


Peak oil, understood as the historical maximum flow of oil, is not a theory, but an observable phenomenon.

What is theoretical, in the commonplace use of the term, speculative is a better word in my view, are assertions made by the authors and other posters that rising oil prices explain some major part of the world's economic turmoil. I don't put much stock in these assertions. I prefer the evidence and logic of people actually learned in economics and political economy.

Compare for example some of the claims made in the keypost and in the comments with what Krugman says here:
and here:

And what James Galbraith, another economist well aware of resource constraints long before TOD ever saw the light of day, says here:

There would be much more value in the discussion of economic issues at TOD if keyposters and more TODsters in general (some do) begin to discuss the implications of declining fossil energy quantity and quality in (a), the context of increasing efficiency (without decontextualized, irrelevant invocations of Jevons), and (b),the dramatic decline in communications costs of both goods and information (please wake me up when rising transportation energy costs take away 25% of the efficiency gains made by containerization).

May I offer one small piece of advice for those wondering what to do when you've dug yourself into a deep, steep-sided hole from which you can no longer climb out. Don't put your shovel aside and start moaning. Instead, begin to bring down the dirt from the sides and build a ramp.

A couple of questions, if I might. Is only the political economy impacted? What about impacts to the domestic economy? And, perhaps more importantly, can changes in the superstructure influence our responses to changes in the infrastructure?

No. Lots. Yes. IMHO, of course.

And by the way, about that new shovel to get out the hole. Yes, it might be wise, depending on the shape of the hole, the composition of the walls, the strength of the digger, and so forth. Technological appropriateness is a moving target.

I thought so...

Mind you, I should say that I don't have a clue what you meant by superstructure, or for that matter, what any of your questions were about, really. I just thought it was better to be polite and try to answer.

Really? That's too bad. You should read some Marvin Harris ;-)

Hi factchecker - on Krugman, this is a valid line of thought, i.e. that price rises drop out of inflation equation on 12 month rolling basis. But here's the catch. Jan 2009 oil prices were $40 and 2 years later close to $120 - so that's a trebling in 2 years not a doubling in 10. And so part of the story is volatility caused by inelastic supply. When prices are plummeting - deflation rears its ugly head, when they are rising its inflation that is worry. Bank of England expects cyclical correction to oil price - they don't spell it out but they mean another cyclical recession.

I'm not sure how you define inflation and deflation, but assuming a meaning relating to the general price level, I note that despite average annual oil prices greatly exceeding the historical average, inflation is only a problem in countries like China, and that there this is primarily due to a refusal to allow their currency to appreciate. In the OECD the economy is still at risk of falling into a deflationary spiral and likely would already have done so but for the (all too small) spending stimulus and quantitative easing.

In all of this the price of oil (reflecting declining quantity and quality) has played a small role, with which I believe you will find James Hamilton in agreement. I do think that oil price volatility, based in part on constrained supply and in part on a mix of asymetrically, imperfectly informed and frequently irrational, market players is disruptive, but does little to explain either inflation or deflation.

What we're see is not inflation but deflation.
The world is getting a lot poorer and at a faster rate than commodities which are getting more scarce!

Depends who 'we' are. China and India are experiencing inflation, and hundreds of millions there are getting richer, though for how long is anybody's guess given the rate of ecological impoverishment.

I would guess that India and China are going to CRASH sooner than many people expected. Maybe they think their growing middle class will keep everything moving along but as americans know the middle class can crash also.
The West doesn't want their exports and raw material/energy prices are too high.

Over the period 1982 through 2009, the global oil production increased from about 53 to 73 million barrels per day according to your chart.

Over the same period, the global GDP increased from about 11 to 58 trillion dollars per year.

Economic productivity of oil went from about $570 GDP/barrel to $2175 GDP/barrel.

If oil production is flat to slowly declining, global GDP should be able to rise slowly or stay flat.

There may, however, be significant changes in GDP/capita in certain countries, with a buildup of economic, political, and military tensions as a result.

This is the thing? how much headroom is left?

The second problem how much of this increase in GDP/barrel is in real time and not forward booking of financial sector profits based on interest yet to be paid?

There should be significant headroom left, especially as lower GDP/capita countries sucessfully compete for a larger share of the available supply.

GDP is based on current end user consumption, so I don't think that forward bookingof financial sector profits affects it much. There is the problem of overconsumption on the basis of borrowed money in some economies, but this is offset by savings and underconsumption in others so the net effect is hard to judge.

...and how much is inflation? I estimate about half.

I see that this topic has been discussed extensively.

Your data from USDA for GDP by year differs quite a lot from the World Bank data. See also

My calculation takes only oil into account. Other energy sources increased during the historical period and displaced oil from some uses, e.g. electrical generation in the US.

It's a little bit tricky to analyze global GDP, at least you should look separately to OECD and non-OECD countries. The way high oil price has impacted those 2 groups differ vastly. Also, some countries have propped up their economies based on large economic stimulus (the US but also China), this effect will be transitory and if those stimulus are not enough to jump-start economic growth, gravity (aka oil prices) may catch up with those economies pretty soon.

What about the possibilty that increasing debt since 1982 (i.e., Reaganomics) is really a proxy for false GDP growth? Subtract out the debt from GDP and you'd probably see a much flatter relationship. Additionally, this debt does not just falsely inflate GDP, it also detracts from current GDP growth through higher (and compounding) interest payments and the need to continually take on more debt to keep the system afloat. Thus, the economic productivity of oil presently is probably lower than 1982, which is logical since today's oil has much lower ERoEI.

Reagonomics affects mostly the US. The US has gone from about 35% of world GDP to about 22%. So if there is a Reagonomics effect inflating the US GDP, it hasn't even been big enough to keep the US numbers up. But I agree that in particular, the US housing bubble in the '00s allowed lots of people to convert the capital in their houses valued at inflated prices into cash available for consumption. Part of this will have to be paid back, while part of the loss will be absorbed by financial institutions such as banks, pension funds, insurance companies, etc.

it is time for OECD and other governments to wake up and introduce serious energy policies to deal with the clear and present dangers posed by peak oil.

They can't, at least overtly, because theories on market economics would be invalidated along with the institutions and cultural mythology that supports it. Peak oil suggests social responses and too many philosophical questions would arise about wtf we've been doing with our time on the planet.

Peak oil may threaten the global banking and financial system since the Ponzi scheme of growth based on credit expansion requires a growing stream of cheap energy to fuel the real economy. When the stream of cheap fuel dried up, the real economy failed, toppling the global fractional reserve banking system that lay at the heart of the Ponzi scheme. Fractional reserve banking has now been supplemented by Quantitative Easing as a means of creating money to drive consumption of finite reserves.

Interestingly, the bubble bursting muddies the water on causal mechanisms They have been working, not only on driving manic consumption, but saving the banking institutions balance sheets by transferring losses to the public sector and system wide austerity measures. In kind of, a institutional schizophrenia. Debt-based mindless consumption has fueled growth over the past few decades.

Peak oil will threaten pensions since these are based upon the excess net energy produced from high ERoEI energy sources (Energy Return on Energy Invested). As the ERoEI declines and the lifeblood of cheap net energy dries up, it is inevitable that society's ability to care for those not in work (young, old and dysfunctional) will be steadily eroded.

As time moves on, kicking more and more people out of the financial system - to save the system - appears to be the response for the foreseeable future - not acknowledging peak oil. Because that acknowledgment opens up a whole range of philosophical questions. Austerity across the high consumption per-capita regions of the world, in a sense, is somewhat of a short-term solution, if one's goal was to protect established institutions. Ignoring the reality of peak oil, people can fight about those irresponsible debtors. Peak oil threatens way more than pensions, it threatens the foundational assumptions of market-economics.

Peak oil threatens way more than pensions, it threatens the foundational assumptions of market-economics.

ALAN GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact.

REP. HENRY WAXMAN: You found a flaw in the reality...

ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

On December 15, 2007, the WSJ quoted Alan Greenspan as saying that oil supply peaked lower and sooner than had been contemplated earlier.

And then who came after Greenspan?

Interesting. That, along with Bernanke's depression credentials, could indicate a little foreknowledge amongst "those who know best" on where this train wreck is headed. Whatever the case, it's best to place blame on something other than the system itself. Otherwise, too many questions would follow.

Not really that interesting. Bernanke and co. say that the main reason oil price shocks caused recessions was that the Fed responded to headline inflation by raising interest rates -- it wasn't the oil price shock per se, but monetary policy in response, that caused the recessions.

The paper is full of statements like "...shutting off the monetary policy response [in their DSGE model] tends to eliminate all or most of the negative effect of the oil price shock". And when it (shutting off the monetary policy response) didn't do that, "special factors" were operating -- again, according to the paper.

I'd say Bernanke had, and probably still has, the mainstream (economics) view that oil's effect on the economy is fully captured in its share of GDP. There's no evidence here, but I'd also guess that he assumes that substitution away from oil (should it become scarce) will be straightforward.

While I certainly think economists, in general, have almost a kind of brain damage. And that brain damage is passed onto the population at large. The US still has a ruling class, like all societies throughout history, and this ruling class is well aware of peak oil, at this point. Which would include filling in the guy in charge of the economy on peak oil. I'm also sure, the ruling class is filled with it's own insanity and hubristic delusions. They seem to preach economic doctrine via their preachers(economists) like the feudal lords of old would moralize and preach religious doctrine through their priests. What that means in regards to the Bernanke's monetary policy is largely irrelevant. Though, I do think he has done a fantastic job of not allowing the economy to collapse into a smoking ruin if left unchecked unlike the narrative that he is clueless.

The other option, is that they are completely clueless on peak oil. in regards to it's potential effect on economic growth, and hence possible huge social stresses. I suppose, it's possible, but, IMO, not likely.

Undertow, you, being the highly intelligent creature that you are, have made the connection between these two points.

It is not clear that Greenspan, even though he made both points, made the connection himself.

The revelation he refers to in the first quote seems to be, in spite of his earlier radical Ayn Rand ideology that high finance should be minimally regulated, or better, not regulated at all, he now sees that in practice this works till it doesn't.

Of course most people who looked into it and were not blinded by said ideology could easily see that there was eventually going to be a catastrophe from such laisse faire policies. It was just Greenspan and his cronies who were in charge of the fed who were so blinded.

But I see no indication that they perceive any role of PO in this. I think he still hasn't connected those dots.

Yes, it is my interpretation but Greenspan seems to have strong opinions on oil.

'I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.'
- Alan Greenspan

But when virtually everyone here thinks standard economic theory is deeply flawed when it comes to "Peak Oil" it seems likely if Greenspan figured out what was happening in reality, that his feelings would match the quotes above. He has never, as far as I know, explained exactly what the fundamental flaw he found, which distressed him so much, was.

If he was talking about lack of regulation, I'm not sure he would add: "I'm not sure of how permanent it is.". If he was distressed that Oil had actually peaked he might add that if he still had a glimmer of hope that production could again rise or viable substitution take place.

Well, Greenspan is famously opaque in his pronouncements, so we will likely never know exactly what he has in mind. But the general flow of the discussion seems to have been about regulation, mortgages and finance.

And note that lots of people who understand that Iraq was about oil don't have the whole picture of PO and its likely consequences in their heads.

And a number of intelligent people that accept that peak oil is upon us still don't see a connection between that event and the financial crisis of '08.

I can't dig it up right now, but I think I did see a video where Mr. G. spelled out that it was his great faith in unfettered financial capitalism that had been shaken to the core. I'll see if I can track it down.

Even if he does happen to believe now that "Peal Oil" presents a "Clear and Present" Danger to economic theory and, more importantly, reality, he is not likely to spell it out in plain language and explicitly connect the dots in public.

I'm also sure he's upset about how people and corporations behaved when de-regulated. And maybe you are right and he doesn't have a clue. The appointment, to replace him, of a professor who had written papers on how to prevent a future depression and bow to run the economy during an oil price shock, just before these supposed skills would really be needed, is then pure coincidence?

Regardless of what Greenspan meant or even what he knew - market protocols as anticipatory, and self-correcting societal tools(regardless of regulation) along with the price point as a valid informational tool, are all in question, when it comes to PO. And really, the consumer as "rational utility maximizer", give the world wide housing bubble. The "unfettered financial capitalism" is a distraction, whether intentional or not, when it comes to PO and market theory. A 12 year old could see the housing bubble from a mile away, while Greenspan was telling people to take out interest only loans and Bush was talking about the glories of homeownership - at the height of the bubble.

Of course, concurrently, you had Cheney and his secretive energy task for meetings, which included Matt Simmon's back in 2000. So you have to wonder, if the leaders of the energy world communicate to the leaders of the financial world, being they are so intimately related. Of course, it would never be admitted if there was coordination. While, at the same time, would be, monumentally stupid, if there wasn't. So, it's kind of irrelevant to the realities that confront us. Which is dysfunctional economic and political system, heading towards a social disaster and a power structure playing dumb(whether real or theater) and talking about irrelevancies, the whole way.

I can attest to your point about Iraq. At the time, I thought it was largely about the oil as did many others, however I merely believed it was because oil is a valuable commodity like gold. This is a natural reaction for most people, as they believe we can just stick another hole in the ground and infinite oil will come out.

It didn't occur to me that it was more about controlling a resource that is depleting with every barrel burned. It didn't occur to me that we couldn't just keep expanding the economy and our energy use forever and a day. Once you understand these things the situation becomes a lot clearer.

Then again it also didn't even really occur to me that a lot of companies get paid a lot of money to blow up people and places, then their buddies get paid a lot more money to rebuild it all.

Then again it also didn't even really occur to me that a lot of companies get paid a lot of money to blow up people and places, then their buddies get paid a lot more money to rebuild it all.

Early Rome would conquer for the glory of it and just go an take peoples stuff, while the citizens cheered. You haven't really been able to get public support for that kind of imperial conquest for a long long time. Which, I guess, is a good thing, IMO. Because, collective morals change over time. Today's emperor's war booty is from their own people with modern finance, but it still seems to share the same DNA with imperial conquest of old. Just different methodologies and new forms of "bread and circuses". And most likely, the same end result. Just this time around, it will happen 100 times faster,.

A decade ago - the question was "who would be able to handle higher oil prices the developing countries or the developed countries". At the time I thought that it would be the developed countries after all they had more income than the developing countries.It would appear that is not the case after all. The reason I believe is that in the developed world there is an established energy customer base whose incomes by and large are not going up and whose income has pretty much been allocated to various consumption categories. The cost of increased energy prices has to be offset by consumption cuts elsewhere except if consumers have the ability to go deeper into debt which they no longer have.

In comparison the developing countries are bringing in new consumers and the incomes of their existing consumer base is going up. This gives those consumers a great deal more flexibility in absorbing increased oil prices.

A decade ago - the question was "who would be able to handle higher oil prices the developing countries or the developed countries". At the time I thought that it would be the developed countries after all they had more income than the developing countries.It would appear that is not the case after all.

Although I suspect if China claimed that it had upped domestic production to 10 trillion barrels per day and everyone in China had 76 cars each that it would get reported as fact as well. Well maybe that's a slight exaggeration :-)

However even if they reported the above levels we'd probably still read of ever worsening fuel shortages and rolling blackouts all across the country as we do now. A bit strange that.

However, we are forgetting the Undeveloped world. There is still quite a lot of that, and only a small percentage of the population of many 'developing' countries are seeing much of the economic development. For an OECD citizen to cut consumption of oil by one barrel a year, it is an inconvenience, even a hardship. For half the world, cutting consumption by one barrel a year is to go without oil at all.

For some people going without their weekly manicure is a hardship

Personally not great with maths any longer but Wolfram Peak Oil Query offers some statistical insight with the one year range being quite dramatic (-43% to 77%).

Thanks so much to all involved.

This kind of clear-sighted analysis and reporting is the reason why I keep coming back to this site.

Keep up the great work!

Hi Euan,

Glad you found the spreadsheet of use; for articles I've submitted here in the past I've always provided links to downloads of the raw numbers, for anyone interested in such. I've always thought we would be well served by some collaborative efforts into gathering numbers for megaprojects and the like, in the spirit of grassroots efforts to factcheck climate data, or those desktop SETI projects. Looking into even one of those megaprojects can be quite a chore.

Hi KLR, TOD from time to time is a fantastic place to gather data and information. The real quiz here is why the JODI data are diverging from the other sources. I sent JODI an email yesterday and am about to do same to IEA. A 6 mmbpd divergence in March 2011 requires an explanation.

For a while I've been meaning to get the hang of hosting things at Google Docs; making permanent repositories for some of this type of work. Also you can link to readymade graphs there, which would simplify keeping track of updates to production etc., sidestepping the usual rigmarole of creating chart/screenshot/crop/save file/upload file/grab URL.

A dedicated post for subjects like that might be welcome. What ever happened to that Greatest Graphs follow up, also? I thought there was supposed to be a subsequent article where we'd all comment on the submissions.

If the price of oil is currently relatively high vs. capability of the economy to turn a buck, i.e. be in positive percentage territory GDP-wise (growth), and what has held it all together since the near collapse of 08-09 is stimulus/QE's in the trillions, then it seems to reason that post QE the US economy will dip into a recession. That is of coure unless oil price drops enough to stimulate economic activity.

Meaning that at current oil prices and without more QE influx, recession seems a fargone conclusion. Not that we are far from a recession now, but I mean the kind the White House will be forced to admit is occuring. Any conjecture on that premise?

I think you are turning things a bit on their head. The oil price is currently relatively high DUE to QE2. Unless QE3 comes very quickly oil prices will now fall a long way.

Also should be remembered that markets always fall more quickly than they rise due to short-selling and stop-loss orders.

So your saying the influx of funds into the monetary system via QEII has increased the price of oil (presumably by devaluing the currency - dollars), and without QE, the dollar should go back up and the price of oil should fall?

Going to be difficult to pinpoint that now the SPR spickets have been opened and the price is already dropping prior to end of QEII.

In any case, its a comedy show watching all these financial machinations in an attempt to hold the damn together.

I agree with you there. I'm afraid the dam is already bursting.

When the stream of cheap fuel dries up, the 'real' resource/energy economy fails, toppling the global fractional reserve banking system that lays at the heart of the Price System.
Buckle up your seat belts. Crash test ahead.
There are limits to growth in a closed system.

The Price System has to grow.
If growth stops it stops being a functioning system as to food security and food security keeps the political Price System in power, what ever the political brand.
This guy figured that out a long time ago
and acted accordingly to develop a science based system, energy accounting method

"It is time for the international political community to awaken to the risks posed by Peak Oil. A British Government report published last week under a Freedom of Information Act (FOIA) request makes clear that civil servants working at the UK department of Energy and Climate Change (DECC) seem very aware of the risks posed by peak oil, and yet the British Government seems happy to continue to ignore warnings."

It is obvious that our so called leaders don't have an answer, or they're just too corrupt to care. I believe it is a little of both. The problem is, we sit here and talk among ourselves as if we are outside spectators that will be unaffected and therefore, we do nothing but talk. I'm missing something here. It is not enough just to raise the alarm, something that has been going on for decades. Even presidents have stepped forward to warn about the crises and nothing has changed. Have we accepted defeat.

Gentlemen and Gentlewomen, I urge you to consider the following and organize accordingly. I feel the future is much worse than we can imagine. Not nearly as casual as the conversation we carrying on in our eco-chambers. We have lots of very big problems that will require very large solutions and changes in attitudes.

Read “Common Sense 3.1” at ( )

Here's some free advice. Your problem is, the problem you have is not a governance problem like you believe it is. The failure of governance, both political and financial, is not the problem, merely a symptom (and only one among many). Yes, your government sucks, but tinkering with it or even destroying it in the hopes of starting over won't fix the underlying problem. The real problem you have is that you live in a global civilization-scaled ecology in overshoot, one that is eroding the carrying capacity it needs to survive. In the process it's using a massive drawdown of fossil fuels to build itself into a frenzy of unmanageable, unhelpful, unsustainable complexity.

Though the problem may be revolting, it's not one you can revolt against. It's just a biophysical fact of life for a large-scale self-organizing complex adaptive system like a global industrial civilization built by tool-using monkeys.

Feel free to peddle your armchair revolution somewhere else.

The real problem you have is that you live in a global civilization-scaled ecology in overshoot, one that is eroding the carrying capacity it needs to survive.

No, that is a symptom of the problem. Given that the vast majority of resource utilization and hence environmental degradation is driven by the top social strata, and that behavioral trajectory is being encouraged, with force even at times, to be replicated across the globe. Yes, in fact, we do know a causal mechanism of ecological overshoot. You can't say that ecological overshoot is causing this behavioral trajectory - because that is ridiculous. Though, continuing mismanagement of the planetary house hold will lead to increasing bad behaviors through structural and systemic breakdown - which we appear to be on the verge of.

The drivers for this behavioral trajectory are the economic model itself and the governments designed to propagate and enforce it. But what do you expect from a social engineering program conceived by 18th century plutocrats that were jealous of the monarchy, with zero understanding of the natural world.

The neoliberal crusaders have conquered the globe, over the last century, to spread the "good news" of capital accumulation, privatization and consumerism.

Feel free to peddle your armchair revolution somewhere else.

I'll take an armchair revolutionary(even a misguided one) over a cause-and-effect-misplacing, fatalistic-nihilist any day.

You can't say that ecological overshoot is causing this behavioral trajectory - because that is ridiculous...

The drivers for this behavioral trajectory are the economic model itself and the governments designed to propagate and enforce it.

Arraya, I must agree with GliderGuider here. To point the crooked blame fiinger at governments is just another way of denial. Which governments? All of them? It must be because the problem is worldwide. Every nation on earth is deep into overshoot.

We have had, in the last two hundred years, every possible form of government. None have caused the problem the world finds itself in and none have even attempted to fix it. That is because the problem lies not in governments but in ourselves, the innate drives that led us to become the most successful form of mega-fauna that ever existed.*

- The destruction of the natural world is not the result of global capitalism, industrialization, 'Western civilization' or any flaw in human institutions. It is a consequence of the evolutionary success of an exceptionally rapacious primate. Throughout all of history and prehistory, human advance has coincided with ecological devastation.
John Gray, "Straw Dogs"

*I used the term mega-fauna because else some wag would bring up rats, mice, krill, or even bacteria.

Ron P.

It is not a fact that we are in overshoot, but an opinion. I preferred life a half century ago when there were a lot less people, but that is just my taste.

It is not a fact that our 'success', by which I suppose you mean our numbers and such indicators as individual longevity, is due to our innate drives. I believe I can safely assert that most, disciplined, students of humankind, in fields ranging from anthropology to economics, would attribute our success to the marriage of our cleverness and our innate propensities, including it must be noted an inclination to love and cooperation, as well as other traits we might see as less desirable.

While John Gray, as a journalist, is clever with words, he is simply imposing his values on the discussion by using words such as rapacious and devastation. Now, I would tend to use the same words, although I, probably like Arraya, would attach the first to a range of social and economic systems and the second to the consequences of industrialism in either of its models and their variants.

Some people are rapacious, many are not. This is observable not only in the literature, but in daily life, everywhere, even in war zones. Most people just want to live ordinary lives in the company of others. It takes a lot of propaganda, in the form of commercial advertising and otherwise, to suck them into activities including consumerism that constitute the rapaciousness of our current 'way of life'.

I would concur with anyone who said our problems are large and (very) potentially overwhelming. But that does not mean that the outcome is pre-determined by our 'innate' drives.

On the matter of revolution, in my own view, the failing of revolutionaries past and present lies not just in a misunderstanding of people's nature (often the mirror image of Gray's), but in the failure to overcome the most practical of problems, which is how we judge and reward the economic contribution of those whose output is not concretely measurable. Marx failed at this, as did Lenin.

As much as I would like to overthrow the existing order and march a goodly number of the apostles of greed off to the blueberry fields of Georgia, I will remain an evolutionary and seek ways to accumulate the capital required for the shift from fossil fuel to more benign alternatives and to demonstrate by personal example that non-consumerism is emotionally, intellectually, and physically preferable to consumerism.

It is not a fact that we are in overshoot, but an opinion.

From Wiki: Overshoot (ecology), when a population exceeds the environment's carrying capacity.

And how would one know if the population had exceeded the environment's carrying capacity? Well water tables would be dropping, soils would be eroding, rivers would be running dry, inland seas and lakes would be dying or drying up, many species of animals would be going extinct and ocean fisheries would be disappearing just to name a few things. Needles to say all these things are happening. And they are all happening while we still have plenty of fossil fuel to produce all the food seven billion people need. Without fossil fuel we might produce enough food for one billion people... but I doubt it.

It is a hard cold fact, not an opinion, that the entire world is deep into overshoot.

While John Gray, as a journalist, is clever with words, he is simply imposing his values on the discussion by using words such as rapacious and devastation.

It is not just John Gray, hundreds of others have expressed the same sentiment. Reg Morrison for instance:

- As for pointing to our mental failures with scorn or dismay, we might as well profess disappointment with the mechanics of gravity or the laws of thermodynamics. In other words, the degree of disillusionment we feel in response to any particular human behavior is the precise measure of our ignorance of its evolutionary and genetic origins.
- Reg Morrison, The Spirit in the Gene

You wrote:

I would concur with anyone who said our problems are large and (very) potentially overwhelming. But that does not mean that the outcome is pre-determined by our 'innate' drives.

Our innate drives did not predetermine anything. Nothing was predetermined. If anything is predetermined then there would have to be a predeterminer. I do not believe there is or ever was any such being. Our species just evolved, we were very successful. And in the long run, too successful.

On the matter of revolution,...

I did not mention revolution and I really don't understand you bringing it up in a reply to my post. Revolutions are just part of the human condition. We have always had them and we always will I suppose. Anyway I very seldom discuss politics and have no intention of doing it now. And Gray did not mention revolution either.

Ron P.

The comment on revolution followed earlier use of the term in this thread. I was trying to be avoid a second post.

Declining water tables are a fact, observable and measurable. Until there is a significant dieoff of our kind, not attributable to other causes, neither they nor the other phenomena to which you make reference validate your assertion that we are in overshoot.

You can be an atheist and a determinist. What to make of Reg Morrison in this regard with his 'spirit' in the genes, which appears to be a variation on the Roman Catholic notion of a 'holy ghost', I'm not sure. But his logic is completely deterministic, as is that in your response to Arraya. What you are saying is that conditions A exist, B will be the consequence, such as in the statement: because of our innate drives we have despoiled the planet, therefore our numbers will crash. It is a variation on an old theme: man is wicked, therefore hell awaits. Removing a 'great decider' from the equasion is irrelevant.

It is a variation on an old theme: man is wicked, therefore hell awaits.

It is a rhetorical trick to trick to try to compare a serious analysis on human nature to religious fundamentalism.

Until there is a significant dieoff of our kind, not attributable to other causes, neither they nor the other phenomena to which you make reference validate your assertion that we are in overshoot.

Though we are destroying the habitat of all other species on earth and more species are going extinct than at any time since the last great extinction 65 million years ago, you state that until "our kind" start to decline then there is no evidence that we are in overshoot.

Don't you think that is rather arrogant. Bye now.

Ron P.

Until there is a significant dieoff of our kind, not attributable to other causes, neither they nor the other phenomena to which you make reference validate your assertion that we are in overshoot.

Until there is a sustained loss of consciousness and activity in my body, not attributable to other causes like sleep or narcotics, neither biology nor religion validate their assertions that I am mortal.

In the same way you can't prove overshoot, you can't prove I'm gonna die until I'm dead. It's just your opinion. In the meantime, I will assume that The End might never come for me.

Arraya, the social/political/economic structures we have created (not just since the 18th century, but since the 80th century BCE) have maintained, supported and rewarded the behaviour that has led us to this sorry state. As Darwinian says, every last one of theose structures - capitalist or communist, democratic or dictatorial, socialist or feudal, tribe, village, city-state or nation-state, empire or colony - they have all supported overshoot-causing behaviour. When viewed from an ecological perspective, the differences between these apparently divergent or even contradictory systems are nothing more than cosmetic. The reason they all have similar impact on the planet is that all human organizations and systems through at least the last 10,000 years have been built on two basic premises:

1: The Earth is a bag of resources freely available for human use; and
2: The Earth's systems are too big for human activity to damage.

Since all human organizations share these two foundational principles, it makes sense to ask where that fundamental similarity comes from. If it's not to be found in the institutions themselves (since they are all ostensibly different) it must spring from some place deeper. This is where the field of evolutionary neuropsychology can be very illuminating.

The second premise above, that the Earth's systems are too big for us to damage, probably comes from the same aspect of our brain that gives us the "hyperbolic discount function" that Nate Hagens has written about here on TOD. As a species we suffer from an overattention to small, immediate issues and an inability to recognize large, distant, abstract problems. We tend to discount rather steeply any threat, risk or consequence that isn't immediately obvious. We focus instead on the satisfying our needs of the moment - food, shelter, sex, status, acceptance etc.

The first premise - that the Earth (and the whole universe if we could get out to it) is a big bag of resources - is ultimately the more interesting one.

Seeing the world this way requires us to be able to see it in some sense as separate from "us". In other words, the world "out there" contains objects that are connected to us only through their utility. This is easy to understand when we're talking about coal under a mountaintop or cattle in a field, but it's a little harder to accept (though obvious on reflection) when the subject is our behaviour towards other people, especially those that are not kin. For most of us, the only thing that is "truly real", that has intrinsic value in and of itself, is ourselves. Except under rare and unusual circumstances, the importance of everything that is not-me is quite secondary. As a result, anything "out there" that I can use is fair game, so long as my use of it doesn't put me in some kind of fairly immediate jeopardy. That applies to everything, whether it's animal, vegetable, mineral - or human.

Where did this apparently universal attitude come from? Well, the fact that it's universal gives us a clue that it's somehow intrinsic to us. The fact that it's an attitude indicates that it's something in our mental makeup. The fact that it's consistent across long stretches of time and a huge variety of external circumstances points directly to some aspect of our brain. I've found some answers from digging into Paul MacLean's model of the "Triune Brain" - the evolution of our brain through a series of reptilian, limbic and neocortical "layers".

The older portions of the brain, the reptilian and limbic systems, give us our underpinning of reflexive, instinctual behaviour. From the oldest, reptilian part of the brain we get our need for security, survival, status and sex. That's where we get our hierarchic, dominatorial urges (and why politicians are so promiscuous). The limbic brain is where our herding instinct comes from. It gives us the need to belong that manifests as the "groupthink" that allows us to launch space shuttles when it's too cold or deny Peak Oil and climate change, as well as being the seat of our altruistic and cooperative behaviours.

The newest part of the brain, the neocortex is where the fun begins. This is where the crowning glories of humanity - reason and consciousness - reside. Reason is our primary tool, because it allows us to manipulate the world methodically and algorithmically. But it is consciousness that gives rise to the Achilles heel of the human animal - self-awareness. Self-awareness is what splits the perceived universe into "self" and "other". That fundamental dualism, inherent to the self-awareness made possible by our neocortex, is what gives us the ability to see the world as a box of goodies. Self-awareness is to some degree intrinsically narcissistic, with al that implies about attitudes and behaviour.

We can overcome this tragic flaw through learning, and many of us succeed to one degree or another. We can learn to understand that we are all connected, that our survival depends on the rest of the world surviving, and even learn to care about distant events on the other side of the planet. However, even here the triune structure of the brain interferes. In its simplest form, the behaviour of social leaders (those with strong dominant, hierarchic reptilian urges) prompt the rest to flock together in limbic obedience. In the process the followers groupthink themselves into accepting the self-interested positions of the leaders, and out of any strong desire to rock the boat. Even this unhealthy situation is further complicated by our need to have our behaviour appear rational, so all of us - leaders and followers alike - go through all kinds of mental contortions to rationalize our largely instinctual, irrational decisions. Man is not so much a rational animal as a rationalizing animal.

The outcome is that humanity has rabid supporters of all the systems named at the beginning, who all believe they are completely rational in their choices, and whose beliefs make precious little difference to their collective consumptive, exploitive behaviour that is wrecking the planet.

There is a possible way out of this predicament, but it is not through the false dichotomy of revolution (that won't change the outcome) or fatalism/nihilism that annihilate the spirit. The third path involves individuals leaving the herd, rejecting the evolutionary traps of both leadership and followership, and deciding to think and act autonomously insofar as they can. This intention requires a great degree of consciousness, to arrive at a point where one becomes aware of their own reactive, reflexive, instinctual responses and can instead bring the reasoning power of the neocortex to bear.

Essentially it means cultivating wisdom.

Are we up to the task?

all human organizations and systems through at least the last 10,000 years have been built on two basic premises:

1: The Earth is a bag of resources freely available for human use; and
2: The Earth's systems are too big for human activity to damage.

Since all human organizations share these two foundational principles

That does not appear to be true.

Take, for example, the Tikopians:

"Tikopians practice an intensive system of agriculture (which has been compared to permaculture), similar in principle to forest gardening and the gardens of the New Guinea highlands. Their agricultural practices are strongly and consciously tied to the population density. For example, around 1600 AD, the people agreed to slaughter all pigs on the island, and substitute fishing, because the pigs were taking too much food that could be eaten by people."

Short-sightedness of the type you describe may be very common in human societies, but it does not appear to be as fundamental to our species as you suggest.

I don't think that the exploitation of nature beyond its limits as encouraged by today's primary civilization is necessarily "bred in the bone" of the species.

If you'll indulge me I'd like to try an analogy to illustrate how I think it works.

I think of our evolved brain structure (our "meatware") much like a computer, which runs software called "culture". It's possible to run many different programs on a computer. Different outputs are possible depending on the program in place, but the types of programs that run best are those that make most effective use of the underlying hardware. In other words, the most successful cultures are those that make the best use of the psychological qualities of human beings, given the objectives of the culture and the resources available.

So far there are have been three cultural programs that have run very well on our meatware. One was "Hunter-Gatherer 1.0" that ran for many tens of thousands of years, but produced very little output. The goal of that software was mainly stability - simply to stay up without crashing. The second program was "Civilization 1.0" that began its run 10,000 years ago when the the discovery of agriculture introduced the idea of "output" to the programmer's toolkit. It ran for almost 10,000 years and produced a reasonable level of output given the resources available. "Civ 1.0" was upgraded very recently to "Civilization 2.0 - Global Industrialization", when a new power source was identified. "Civ 2.0" has has only been running for 200 years or so, but its output of "progress" has been remarkable. At this point unforunately the primary power source is showing signs of instability and side effects, and the program itself is showing signs of instability, but the boys in the lab say they'll have those problems licked before they become too serious...

The point is that the cultural program now in control of the system is making use of a different set of meatware circuits than the old-fashioned "H-G 1.0" used. Stability has been subordinated to productivity by leveraging the meatware circuitry for status, hierarchy and growth. Unless and until "Civ 2.0" crashes, it will continue to use the underlying meatware in the most effective manner for achieving its goal, which is "material output". If and when it crashes, due either to inherent design flaws, implementation bugs or the failure of its primary power source, other circuitry may be released to run in place of the circuits currently in use. As the circumstances will have changed at that point, culture will necessarily have changed as well, and its objectives will be different. "Civ 3.0" will require, encourage, support and reward the use of different brain characteristics than those in use today.

This is why even today in some isolated circumstances different behaviours may be seen than those in the general, globalized industrial culture. Different circumstances require it. On a 5 km^2 island with a population of 1200 it's very easy to be conscious of resource limits. As a result, their culture rewards the use of different psychological traits that result in behaviour appropriate to their circumstances. We do not live on Tikopia, we have little visibility of natural limits, so our culture and our behaviour are vastly different. The fact that a mere 1200 Tikopians (along with a few other h-g remnants) stand as the only counterpoint to 6.9 billion "homo industrialis" speaks volumes.

Raymond Firth speculates about the ways population control may have been achieved, including celibacy, warfare (including expulsion), infanticide and sea-voyaging (which claimed many youths). Currently, many young men leave the island, heading to either the Russell Islands or the national capital, Honiara, in search of work. As a result of this outflow, population control is less necessary.

The coping methods are pretty standard.

It is obvious that our so called leaders don't have an answer, or they're just too corrupt to care.

Ways of doing things become entrenched until something shifts. The plateau since 05 just hasn't been enough to drive change. Sure, I know posters here on TOD understand the situation with oil and its implications on the economy, but most other people do not. Until that hundredth monkey so to speak washes its darn potato in the surf, there will remain a steadfast, stubborn stance to hold steady with BAU. Steer the slowly sinking ship straight as can be, throwing QE's into the bilge hoping they plug the hole and generate higher percentages of GDP, and then extract oil from the SPR to eek out another 1/3 of 1% growth. Anything to keep the passengers from panicing and running around the deck like chickens with their heads cut off seeking a way through a bottleneck that will only be there for a lucky, but traumatised few.

Eating our tails!
Agreement reached to release global strategic oil reserve to make up production shortfall:-

So from this we get total volume of the global strategic reserve divided by reported daily shortfall equals number of days before somebodys oil order is
returned stamped with "Sold Out"!!!!

Peak Export? Its now! And counting DOWN!

This is such old news in this thread that it is sort of embarrassing and way behind the curve.
The information connected is simple math. Nature is not complicated nor physics.

Oh I'm sorry John! I didn't mean to embarrass you! ;) From my perspective this event is interesting because its to redress a shortfall that is much wider than just the lack of 1.5 million bbl; per day from Libya. Using the global strategic reserve as a replacement for sustained production is a sure sign that we have entered the end-days of the global mineral energy supply.

The numbers suggest that if the average shortfall to be made up from the reserve is 2mbbl/day then the 4.1 billion bbl reserve will last about 5 years which falls to 1 year at 10 million bbl per day. As you state its simple maths, but because the numbers are so unambiguous and so public it is the best evidence yet to the great unwashed that we have very little time left to make preparation for the coming interesting times.

Spread the word!

Well, ok... as said this is commonly known information and spreading the word? Mainstream news abounds with the 'word'.
Hubbert warned... scroll down on that in the middle late 1970's, so this information of a probable 'catastrophic event' has been known among people that 'want' to know for a long time (:
While making industrial oil out of carbon is also common knowledge (thermodepolymerization) industrial society is not set up to do that on a big scale... so hello slow motion... faster and faster motion train wreck directly ahead. Fasten seat belt snugly and put head down... and yes probably a good idea to inform others.
The political price system does not care much though. They are asleep at the wheel.

Why do people go nutbar, and not just Austrian School economists, about fractional banking? It's been around to a degree at least for hundreds of years.

Being concerned about bank regulation and the degree of fractionalization is a different matter.

Foucher, westexas et al. See EIA Discussion papers:
Incorporating International Petroleum Reserves and Resource Estimates into Projections of Production

This paper describes EIA's petroleum reserves and resource assessment methodology, comparable long-term outlooks' approaches to resource uncertainties, production decline rates, resource terminology, and the available estimates.
released: June 7, 2011; author: John Staub(202)586-6344

The website provides for submitting comments to the authors.