Countdown to $100 Oil - High Energy Prices Suppressing Growth?

This is the fifth post in the series following the oil price, markets and general health of the global economy, examining the simple theory that OECD recession may result from annual average oil price exceeding $100 / bbl.

The annual average price (AAP) of Brent went through $100 on around 16th August 2011 and the AAP stood at $108 on 22nd November. The AAP high point in the 2008 price spike was $104.8 on 9th October that year, and so $108 expensive dollars sets a new record. This is a short post updating readers with developments including speculation about why a weak world economy can now sustain record high oil prices.

Figure 1 Data for Brent from the EIA, 1 year moving average roughly equals 5 trading days per week divided by 7 days per week = 261 days. FTSE 100 data from Yahoo. Back in 2007 – 09, the top of the London FTSE 100 index was 6731 on 12th October 2007 (1). The top of the oil price spike was $143.95 on 3rd July 2008, 8 months after the market top (2). Both oil price and markets had declined substantially by the time the Lehman induced crash came in October 2008. The recent high in the FTSE 100 was 6091 on 8th February 2011 (3). The top of the recent oil price spike was $126.64 on 2nd May 2011, 3 months after the market top (4). Data at 22nd November.

In his autumn budget statement, UK Finance Minister George Osborne recognised that high energy prices were one of three factors suppressing growth in the UK:

And in addition to the Eurozone crisis, the OBR (Office for Budget Responsibility) give two further reasons for the weaker forecasts.

First, what they call the “external inflation shock”, “the result of unexpected rises in energy prices and global agricultural commodity prices”.

Their analysis is that this explains the slowdown in growth in Britain over the past 18 months.

The day after delivering this statement, Osborne participated in coordinated action with other central banks to pump even more liquidity into the global financial system sending commodity prices sharply higher. The political and economic elite do not seem to have grasped as yet the links between their economic growth policies and high energy prices that suppress that growth.

Despite the fact that most commodity prices are now in retreat, Brent oil prices remain stubbornly high at over $100. The historical precedent for high oil prices and recession in the UK is illustrated in the slide below, used in a lecture to first year undergraduates at The University of Aberdeen a couple of weeks ago.

Figure 2 The relationship between oil prices and recession in the UK. Note that countries in the Euro Zone periphery are contending with high energy prices, high interest rates, high € exchange rate and cuts to public spending at present. What chance recovery?

Three out of the last four UK recessions are associated (not necessarily caused by) spikes in oil price. The fourth was caused by the UK's membership of the Exchange Rate Mechanism (ERM) that preceded the € whereby countries pegged their exchange rate to a basket of European currencies (i.e. the Deutshmark) by adjusting fiscal regimes and interest rates. Defending this policy by ever higher interest rates led to the humiliating exit of the UK from this mechanism on what has become known as Black Friday. Norman Lamont (then Finance Minister) was humiliated and George Soros made a killing and became famous. The UK entered a sharp recession that ended when devaluation and a lowering of interest rates made our economy competitive once again. There is a message in there for the EZ countries. Germany is currently basking in the warm glow of a low exchange rate, boosting exports and growth while much of the European periphery is being barbecued, not just by a strong currency and rising interest rates but at the same time near record high oil prices. Something has to give - and will do quite soon!

And so to a look at a range of reasons for stubborn high oil prices:

1) Whilst is appears that a new AAP has been set, adjusting the previous peak of $104.8 from October 2008 for three years of inflation at 3% per annum provides an adjusted value of $115 in today's money. Thus prices must strengthen considerably from here to match the 2008 peak.

2) Global all liquids demand remains strong as this chart from Stuart Staniford at Early Warn shows. Thus while news abounds on weak growth in Europe and risk of double dip recession rises, it appears that these troubles have not yet affected oil demand at the global scale. Is Europe about to lose more share of the global oil market?

Figure 3 Global all liquids hit a new high in October 2011 suggesting that global demand is still strong despite near record high AAP for Brent. All liquids = crude+condensate+NGL+refinery gains+bio fuel. Chart from Early Warn.

3) The Arab Spring has turned to the Arab Fall and tensions in Syria, Iran, Egypt and Pakistan combined with continued unrest across the MENA region may continue to provide a risk premium for oil while other commodity prices fall.

4) The proximity of the back side of Hubbert's peak in crude oil means that the oil market is tight causing relentless pressure on price.

5) The theory that high oil prices lead to recession in the OECD may be incorrect.

I am not yet ready to declare a link between high oil / energy prices and recession as dead and my continued perception is that these persistent high oil prices are suppressing growth throughout the OECD and that it is this absence of growth that is in part responsible for the inability of certain European nations to service their debts. The unsustainable high nature of these debts is of course a major part of the problem too combined with the fiscal structure of the € zone that forbids participation of the European Central Bank in primary bond markets. Even if the € crisis is "solved" I believe we will see the peripheral EZ countries limping on with low or negative growth, burdened by high energy prices.

"oil is too expensive to support growth and at lower prices supplies will not be sufficient to support meaningful growth."

Rune Likvern

Earlier posts in this series

Oil prices and recession June 1 2011

Countdown to $100 oil - a date with history? July 11 2011

Countdown to $100 Oil - Deja Vu? August 26 2011

Countdown to $100 Oil - No Normal Recession October 17 2011

Regarding monthly total liquids data (which are subject to revision and which can be affected by inventory changes), some perspective: Five annual "Yergin Gap" charts follow, showing the gaps between where we would have been at the 2002 to 2005 rates of increase, versus the actual data in 2010 (common vertical scale):

EIA Total Liquids (including biofuels):

BP Total Petroleum Liquids:

EIA Crude + Condensate:

Global Net Oil Exports* (GNE, BP & Minor EIA data, Total Petroleum Liquids):

Available Net Exports (GNE less Chindia’s net imports):

I would particularly note the difference between the first chart, total liquids, and the last chart, Available Net Exports (ANE). At the 2005 to 2010 rate of increase in Chindia's combined net oil imports, as a percentage of GNE, the Chindia region would consume 100% of GNE in only 19 years. Apparently, there are 196 countries in the world. If we assume about a half dozen inconsequential net oil exporters, in addition to the top 33 net oil exporters that we have analyzed, that leaves about 157 net oil importing countries. As noted above, at their 2005 to 2010 rate of increase in net exports, as a percentage of GNE, in 19 years the Chindia region would consume 100% of GNE, leaving nothing for the other 155 net oil importers.

Normalized oil consumption, 2002 to 2010, for China, India, Top 33 net oil exporters and the US, as the annual Brent price increased at an average rate of 15%/year:

Note that CERA, et al tend to focus on the total liquids data while ignoring the GNE & ANE data. Since Daniel Yergin, co-founder of CERA, is now calling for less than a one percent per year rate of increase in total liquids productive "capacity," which is similar to what we saw from 2005 to 2010 in the EIA total liquids data (+0.5%year), it seems to me that Yergin is, almost certainly without realizing it, in effect predicting a continued decline in GNE & ANE:
Daniel Yergin Massively Reduced His Energy Estimates

*Production less consumption, top 33 net oil exporters in 2005, BP + Minor EIA data, captures 99%+ of total net exports

westtexas - I'm putting together a powerpoint for a presentation I'm doing about PO, carbon pricing and the possible effects on urban land use (its a bit esoteric, but is for a university audience, not a general one). I'd love to, with your permission, use these slides to illustrate that the predicament we face goes beyond total production.

Feel free to use the slides. If you need anything further, shoot me an email. I have some forward looking GNE & ANE slides, showing a couple of "What if" scenarios.

Jeffrey Brown

Great (on both counts!! I'll send you that email this evening.

Perhaps you can try this instead of your powerpoint presentation.

Excellent. What a fantastic alternative to death-by-Powerpoint. Thank you.

Hi TODers!

TOD authors and editors prefer that article comments relate directly to the MAIN article topic. Please review the Readers Guidelines at

Other energy topic comments are always welcome in the current Drumbeat thread, basically the TOD open forum.

Best regards,

Is that a question ?

Known for quite some time already, no ?..

"Essentiellement la richesse est énergie : l'énergie et la base et la fin de la production"

Time to go look back into the "physiocrats" also, maybe :

And when is the US putting itself a sizeable volume based gas tax just out of its own purely selfish survival interests ?

Or are wars and mercenaries the only planned mitigation direction ?


Perhaps the discussion should avoid the tag "causing recessions". Multiple factors could coincide with any recession. Even the definition of recession is debated by some.

But the effect on growth seems rather straight forward. Not sure how that link can be denied. I doubt anyone one would disagree that there would be a significant positive impact on growth if oil fell to $40/bbl next week. Or am I wrong? The magnitude of the impact and the associated feedback loops can be discussed endlessly, of course. But, conversely, when oil prices jumped from $40/bbl in 2004-5 it would be difficult to argue that it didn’t have a significant negative impact on growth.

The more pressing question would seem to be how the world economies cope with what appears to be long term higher energy prices. In theory alt development would be the way to go. But if the economies can't maintain BAU then how do they fund alts? It would seem logical that even more capex has to be drawn away from the now diminished BAU expendatures. And if the alts don't afford a profit margin competative with all the other BAU efforts why would we expect private investments to move that direction? The govt could provide capital support but they are also faced with a problem supporting its existing BAU. Conservation is offered as a possible way to go. And there's certainly a lot of "fat" the US could trim. But it's still a zero sum gaim: a significnt portion of society depends on that fat to support themselves. In the end, someone has to give up even more than they have already.

Anyone have some "volunteers" in mind?

RockMan, To be honest I've been surprised that the global economy has not yet sagged under the recent price spike but believe the impact is working its way through the system and that a European recession at least is likely unavoidable now. USA seems to be in better shape, maybe you guys are better at Capitalism - but maybe your cheaper nat gas prices are helping too. Of course the powers at be are doing all they can to avert the disaster of a double dip.

You are correct to point out multiple causes for any recession - two successive quarters of negative GDP growth in the UK. It may be argued that I don't have a lot new to say in this post - and that's true, but one reason to keep the series going is to hammer a message home. And it is encouraging for me at least to note now that our Finance Minister recognises high energy prices as an important factor in holding back that all elusive growth. 3 to 4% growth per annum "solves" Europe's debt crisis, for a while at least.

The interesting thing is that recognising and acknowledging the problem, what you do about it. Recent action by George Osborne has included a £10 billion tax raid on North Sea oil production, in his statement yesterday he deferred a 3p per liter tax rise on gasoline and today the new liquidity splurge. All this is designed to penalise the energy producers and to stimulate consumption - both lines of action sending energy prices higher, the exact opposite of what is wanted. I understand the political imperatives of these actions, but at some point the cycle needs to be broken.

There is no simple solution - as you know - but as a starting point the OECD (and the USA in particular) needs to aggressively attack energy waste with the aim of getting energy consumption down. Power stations, home heat and cooling, automobiles - all need to be much, much more efficient. Moving onto replacement forms of energy I think this needs to be completely rethought in how it is presented to the public.

I still like the writing of Charles Eisenstein....

Peak Oil, Peak Debt, and the Concentration of Power

.... where I believe it is possible to run society on renewables, its just that society will be very different to the one we have today. Some would argue better, others would argue worse. Believing that transitioning to renewables will somehow be easy, simple and cheap is I believe naive. I think transitioning from the time of plenty to the time of less will be a very painful process for OECD societies.

Bleeding Britain:

And yet what’s happening in Britain now is that depressed estimates of long-run potential are being used to justify more austerity, which will depress the economy even further in the short run, leading to further depression of long-run potential, leading to …

It really is just like a medieval doctor bleeding his patient, observing that the patient is getting sicker, not better, and deciding that this calls for even more bleeding.

And the truly awful thing is that Cameron and Osborne are so deeply identified with the austerity doctrine that they can’t change course without effectively destroying themselves politically.

As the Brits would say, brilliant. Just brilliant.

The snag I see in this is that it might never be possible to "print" enough money to satisfy Krugman, or at least not without causing Weimar II or postwar Hungary. 1020 pengo for a loaf of bread, anyone? The pols are going to have to make up their minds (if they have any) about whether to pursue enough growth to satisfy Krugman's concerns in the manner Krugman would (implicitly) deal with them, i.e. by running up debt without limit and paying it off with growth, or whether to please the greens and the climate-treaty-ites by phasing out BAU so hastily as to have a huge depressionary effect (didn't someone mention that one can't print oil?) They're only pols, so they'd like to have it both ways, but maybe they can't and they'll eventually have to toss at least one set of lobbyists off the bus. And if physical considerations eventually make it impossible to have it Krugman's way, well... that's another angle.

I dare say Krugman may be more conversant with PO than you are with economics. According to him, and I think he's right, inflation is not a major concern at this point. On the other hand, you argue that increased economic activity will not lead to growth, since there's not enough energy for it. Fair enough. So what if you borrowed a lot of money and put a lot of people to work, as PK wishes, but you put them to work entirely on alt energy and efficiency projects? His main point, as I take it, is that we have MILLIONS of Americans sitting around doing basically nothing, and surely we could put them to work doing something useful?

New jobs for those millions in the USA and in other countries with high unemployment tend to require more energy on the whole, even if those jobs would be in alt energy and efficiency. Unless the new jobs were able to create enough new alt energy sources or create enough extra efficiency to offset the energy requirements of creating and sustaining those new jobs, then more energy would be required on the whole. If a business model where creating a lot of new jobs in alt energy and in improving efficiency were easily doable and profitable, then one would have expected the markets to have already beaten a path to their door for the clear benefits in doing that, just as in the case of a proverbial better mouse trap design. Build a better mousetrap, and the world will beat a path to your door.

Since oil production appears to have either peaked or plateaued, one would expect that all of the existing oil production is somewhat spoken for or dedicated already to the existing jobs already in place. It's not an official dedication, but it is likely a zero sum game. A "push in" in one place will result in a "pop out" in another. Creating new jobs in one place could take away jobs in another (which kind of explains how offshoring has affected many countries that formerly had low unemployment but now have high unemployment).

The business/governing model for new job creation may need to adjust to reflect the zero sum game, where more manual labor is relied upon, and where more people are put to work, but where the energy input remains constant or even decreases over time.

My other comment to this article about a worldwide drive 55, etc. could help to free up some energy for new jobs, but it is not along the lines of new job creation that would be directly involved in alt energy and in efficiency. In general, more alt energy (with beneficial EROEI) and more efficiency are good things and they help to free up the current energy flows already in place to support new jobs and existing jobs.

We need a new kind of economy rather than adjustments to the 'old-school' model John D. Rockefeller and Standard Oil Corp. left us with.

Instead of the waste-based regime dependent upon consumption what is needed is a conservation-based economy that rewards thrift and the increase in capital quality.

Today's narrative is very simple: our economic distress is the result of high labor costs rather than high energy costs.

Following this narrative, the cure has been to substitute petroleum/electric machines for humans and follow other strategies to reduce labor costs: zero-interest rate policies, banning labor unions, offshoring jobs, substituting credit access for wages, allowing unrestricted immigration, cutting worker benefits, cutting taxes to managers, automation, etc.

The incorrect narrative means the cure -- primarily automation and offshoring -- IS the disease.

Keep in mind, billions are working w/ desperation around the world around the clock to prevent a depression, so there should be no surprise there has been no collapse. Rather more surprising if there had been one!

Another thing is that rationing is taking place by shrinking credit/deleveraging which is slower than rationing by collapse/demand destruction. For instance, UK is experiencing 'fuel poverty'

Greece, Portugal, Ireland and the rest of the EU is becoming car- free as they lose access to credit. If they fall out of the Eurozone their replacement currencies will not be acceptable to oil exporters (who can sell to hard-currency China and India). Eventually the ongoing deflation will render the entire EU car free as members either have worthless money or their export industries lose customers.

A final thing is that Peak Oil only exists in the context of vehicle use/waste of petroleum. Auto burn has been the priority use for petrol. This has shouldered aside other potential uses that would add a higher value to petroleum. Right now the alternative uses for petroleum do not require the volume of material: lubricants, chemical feedstocks, asphalt. Remove the cars and there is no peak oil 'problem'. We have enough petrol for lubricant use for 100k years.

Enjoy your oil can.

Actually running existing US Green Transit (i.e. Rail, buses, vans with biking and walking) could bring major energy savings almost immediately at very little cost. Just to take the example I know best - the whole
New Jersey Transit system of commuter rail, light rail, buses and shuttles provides 365 million trips for an operating cost of only
$300 Million which is now, due to Gov Christie cuts, almost entirely borne by transit riders. When you consider that just 1 highway bypass cost $78 Million this is a pittance especially compared with $7 Billion
being wasted on new highway lanes in New Jersey.
Most of these Rail systems do not run on weekends and have horrible frequency on even weekday off-peak service. They are totally oriented towards commuting to New York City and back even though 50% of New Jersey lives within a few miles of a train station. Just running the trains every 30 minutes and supplying connecting shuttles or bikeways for the last mile would get literally thousands of cars off the road as well as saving thousands of gallons of gasoline.
New Jersey is more densely populated than China and surely easily capable of getting to the existing European level of using only 33% per capita oil usage it does now.
And this is not limited to New Jersey.
Despite all the wonderful claims about the "vast United States" in fact according to the US Federal Highway Administration 79% of Americans live in urbanized areas which could easily use Green Transit. In fact back in May, the Brookings Institute did an amazing
2 year study of census data, jobs and transit systems which found that
70% of working age Americans live only 3/4th mile from a transit stop!
For the New York metropolitan area the figure is 90%!
Yet only 30% could get to a job even during peak hours with the most
frequent transit in less than 90 minutes. This is due to the lack of connections, infrequent service, lack of local/express service, and lack of shuttles or other means for the last mile.
This is hardly impossible to fix nor requires huge outlays of energy.
It does not even require building anything to get the first benefits.
Simply hire people to run existing peak hour train capacity around the clock and all week long, take Govt vehicles for personal use of
people like the NJ Transit Director and use them for shuttles, hire
drivers to drive those existing Govt vehicles.
In fact how about conscripting military vehicles into the task instead of wasting them on fruitless endless Resource Wars for Oil?
Right away without any investment except for jobs for the unemployed and a minimal amount of energy redirected from personal use to public
transit huge energy savings could be made.
Those savings could then be invested in the next steps of bringing back into service already existing trunk lines which could easily double capacity and the reach of already running Rail lines.
Across the USA there are 233,000 miles of Rail just waiting to be
summoned back to service.
It is time to stop the highway madness and just do it!

The only problem with putting those millions back to work is that the system is then set up to encourange them to put their new discretionary income to work buying up a bunch of resource intensive stuff. If employing millions in alt energy and other well intentioned programs only serves as another hit of "we must have growth at all costs" drug then it's destined to be a failure. At this point it's pretty much the case that governments & business are just stringing together increasingly outlandish and unsustainable "solutions" to give the "markets" a sugar high for a while.

A real stab at a "solution" would be to go ahead and put those millions to work on alt energy, level with the masses as to our dire predicament, and start instituting programs that try to lead to a somewhat (not likely) orderly power down and reorganization of basics such as food supply and power distribution. Really this would be more of a "resolution" and a painful one at that, rather than a "solution". Of course we all know this will never happen willingly - our "can do" attitude doesn't deal well with resolutions - we need them all wrapped up in tidy packages of solutions, where nobody has to sacrifice.

The system is so broken and BAU so entrenched that we're to the point where "outside the box thinking" just allows change in a small cell within the larger BAU box - with very limited opportunity to break out of this much larger box. In the long term - resource wise - it may be that it's better to have people sitting around doing nothing IF they can't fundamentally change their priorities and / or the system in which they currently exist...

Maybe it's better in some larger sense to have people sitting around doing nothing--but I'm not convinced. It is very, very hard for unemployed people and their families. Anyway, I was mainly responding to the inflation argument, which seems to me wrongheaded. Putting people back to work may be wrong, but it's not because we'd have to print money to do so. Peak oil is a huge problem right now. Inflation is not.

Why a smart man like Mr. Krugman cares a whit about Britain eludes me. But then he's in denial about Peak Oil like most others.

He cares about Britain because they took the complete opposite route from what he recommended -- austerity instead of massive stimulus. He certainly wants to believe that Britain would have been better off trying to stimulate their economy through deficit spending.

The UK has implemented cuts - for the 99%. The banking class are still seeing double-digit income rises.

The austerity has not caused an manufacturing/export led recovery, in fact we are re-entering recession, because of stubbornly high energy prices, and the collapse of our European export markets. Unemployment is rising rapidly, I expect to add to the number personally in the next few days... forecast tax income is sharply down on previous expectation and the net government debt is still growing and accelerating. Even the Tory government is pinning hopes of bringing it under control on the return to 3% GDP growth in 3 years time.

We have economic collapse delayed, not prevented. Maybe, if most of Europe goes under first, the energy prices will come down far enough to see us round the corner for another decade.

This week the chancellor announced yet another cut in the state pension (rise in starting age) and public sector pay raise cap of 1% (on top of a 2 year freeze) and a stimulus package of oil powered transport infrastructure investment funded from the private sector pension contingency fund.

I'm not betting my savings on that working.

What is the alternative to austerity? There is growing proof that we have reached the limits of growth. Deficit financed stimulus spending operates on the assumption that you can stimulate the economy into growing faster, thereby enabling the budget to be balanced. If we have reached the limits of growth, stimulus spending only results in more debt and even more pain further down the road. The inability of the economy to keep growing also has a pretty negative impact on pensions. The pension plan model where a worker invests a small portion of their earnings into a pension fund that than grows consistently at a rate several percentage points higher than the inflation rate only works as long as we have continuous economic growth.

Austerity was a very effective cure for our economic problems in Canada back in the 1990's, but that was at a time when the rest of the world economy, especially our major trading partner the US was in good shape. These days it isn't going to magically fix anyones economy.

When I look at the country like Britain I don't see any way they can avoid a drop in the standard of living. You have a large population for your size, little natural resources and need to spend an increasing amount of money to import energy. You are better off taking the hit now than trying to kick the can down the road.

My provincial government (Ontario, Canada) is very much wedded to the idea of stimulus spending to avoid inflecting any significant amount of pain on anyone. They consistently run $16 billion deficits and have accumulated twice the amount of debt per capita as any other province in Canada. Like Britain the prospects for growth in our manufacturing/finance based economy are poor and we are resource poor in comparison to our western provinces. The growth projections that our government uses are completely unrealistic. It just means that when we reach the point that our provincial government cannot borrow anymore, things are going to get pretty ugly. We would be much better off to try to balance our budget now rather than continuing to dig ourselves into a deeper hole.

I think that we are seeing cognitive dissonance on a global scale. Government officials generally refuse to acknowledge resource limits. It's as if, once the Titanic hit the iceberg, the officers resumed the voyage, and ignored reports of flooding.

It may be that many government officials understand the situation but don't want to do something that would threaten their chances of being reelected. I remember years before the financial meltdown someone commenting that if the changes that society needed were to be implemented, political leaders were going to have to be prepared to spend their political capital after getting elected. It seems that few leaders are willing to do that.

Maybe the solution is term limits for all politicians. If a politician knows they cannot run for office again they may be more inclined to support a needed but unpopular reform.

I know that the US president can only serve for two terms but given the amount of power that exists in Congress and the Senate that isn't sufficient.

@jstewart: "There is growing proof that we have reached the limits of growth. Deficit financed stimulus spending operates on the assumption that you can stimulate the economy into growing faster"

It does look like we may have reached the limits of growth, but that does not mean that it's a good idea to have 10% of our able-bodied people (or in Spain 25%) sitting around eating cheetos and feeling miserable. It sucks for them and it's not great for us. Rather than calling it "deficit spending" let's call it "making sure everyone's doing something useful." The 99% are increasingly screwed, and I think we should try to help.

I agree that unemployment is a huge problem, especially among young people. The solution cannot involve more deficit spending though as that is unsustainable in an economy with little or no growth. The OWS movement represents a first effort by people to rejig the system. Unfortunately, the OWS movement has given a lot of people the idea that the needs of the 99% can be satisfied just by taxing the 1%. I don't believe that is the case. To properly provide for everyone in society will require taking away income from the middle class (oops, that's me!). It will also require a lowering of expectations of the type of work that people will be doing. The idea that everyone with at least two brain cells should be able to get a university degree and a nice well paid office job where you don't get your hands dirty is no longer tenable.

I used to be annoyed at people who only thought in terms of redistributing the econonmic pie because running a more open market would enable the pie to grow. It's an entirely different situation when that pie cannot get larger and may in fact shrink in size.

One way to "create" jobs would be to stop immigration (except for a small number of highly educated/skilled people or people with a lot of capital to invest) and to encourage non-citizen workers to leave. I am surprised this has not happened already. Of course this doesn't solve the problem but reduces the pain and buys you some time.

In the case of the US, I am puzzled that all discussion of immigration revolves around illegal immigrants. Meanwhile, a large number of legal immigrants continue to come despite the continuing high unemployment rate.

In Canada we actually had more immigrants in 2010 than we had had in many many years. However, there are some signs that the government is moving towards changing the immigration system. There is more focus on bringing in skilled immigrants with skills that are in demand. A two year moratorium on accepting applications for family reunification has been put in place while the federal government consults with the provinces on what to do. In the meantime, the number of immigrants admitted under family reunification will be increased to try to clear the backlog of applications. So I am hopeful that we are heading in the direction of reducing the number of immigrants we admit.

I am puzzled too. With a real unemployment rate that is close to 20% I thought they would have shut down immigration by now (with the exceptions listed above).

A modification of the Keynes Lenin quote: There is no subtler, no surer means of over-turning the existing basis of society than to raise the price of energy. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

I think we are seeing the slow strangulation of the economy, but it is so subtle and intertwined, that it will take historians to pinpoint it.

+ 10

Believing that transitioning to renewables will somehow be easy, simple and cheap is I believe naive.

That baffles me. Hybrids like the Prius and EREVs like the Chevy Volt are better vehicles in every way: cheaper life cycle costs, better performance (acceleration and handling....well, at least for the Volt...), quieter, cleaner. Renewables are at least as well geographically distributed as oil!

That also suggests that somehow oil (as well as NG and coal) has been easy, simple and cheap. Hasn't the recent multi-trillion dollar oil war started to disabuse us of this notion??

The 'time' factor in our energy use will have to slow. To slow our lives down, to wait. Wait until the next tomato season. Wait until we can be in a certain location to pick something up. To slow the rate at which heat escapes our buildings, or the rate we replace vehicles.
How much energy gets consumed supplying our 'wants' quickly?

I do not like nor advocate the idea of everyone wearing gray wool coats and living in boxy gray buildings, but surely there must be some room to reduce our energy consumption and still have a very comfortable life. Frivolousness will have to go (WT's ELP and get on the non discretionary side of the economy). The best advise I have heard to date.

(simplifying)The BIG obstacle is those who lent money foolishly believe they can demand repayment and it will therefor "happen". Lenders want to get paid in full and with money that has value. Unfortunately we let the financial people deregulate their industry and we are being asked (forced) to pay for their greed and incompetence.

"But it's still a zero sum gaim"

This zero sum game "mantra" is so overblown ...

A no growth economy is still :
- same number of cars produced as previous year
- same number of wheat or corn tons grown and consumed as previous year
- same number of Kwh produced and consumed as previous year
- same number of sun rays reaching the earth as previous year (more or less)
- same number of barrels extracted and burnt as previous year

In other words still primarily a notion of flows, and not this "the economy is growing, shrinking, or whatever"

And in the end, the "what" is produced is of course of prime importance independently of the amount of money it represents.

And to influence this "what", without having to define it in anyway, volume based fossile fuels taxes are for sure the best policy, in fact most probably the only valid one.

However in a no growth economy the population keeps growing. No jobs for new people added to the population. New technology keeps saving more labor, putting more people out of work. No jobs for the newly disenfranchised. (Meaning the Luddites are finally right.) And "no growth" means people taking out loans to start new businesses mostly fail. Banks make loans expecting growth. Growth pays interest on loans.

The end of growth is the beginning of collapse.

Ron P.

Not sure about all that.

The energy growth destroyed a lot of jobs, lower energy also means more maintenance, more recycling, more people involved in agriculture, etc.
As to ""no growth" means people taking out loans to start new businesses mostly fail."
Not even sure about that one, no growth can also mean that new business failing and the one succeeding end up in a kind of balance (and same for the bank loans). Could be compared to what is done with venture capitalists in high tech for instance. On the other hand bringing financial role back to "investment judgment"(and away from derivatives of derivatives) could also make sense.
But for sure some serious turmoil ahead yes.

One thing for sure, the only way to push for a less fossile intensive OPEX economy is through volume based taxes.

And many things are possible without even major innovations : cars can get lighter less powerfull very easily, two houses at 20 or 22°C it's the same thing, except one can be insulated consuming not much, one not consuming a lot.

And the knowledge economy also, if the "everything should be free on the net or fed by commercials for "real" products" dogma was questionned ... A book is a publication, a web site also, and whatever is said the contents on the web is quite far from what it could potentially be.
But for sure the kind of Alzheimer twittering facebooking frenzy isn't really headed in that direction...

I agree totally with Darwinian.

If only we could stop growing more of us, and instead adapt to fewer people, there might still be a rise in productivity, combined with a different and less damaging - I would hope - form of 'growth'.

Unfortunately, here in Britain at least, every political imperative seems to encourage the growth of people; benefits for having more children, subsidised housing for women who have children without any support mechanisms of their own, encouraging more housing, even when tens of thousands of houses stand empty, more railways, more roads, promises of yet better healthcare... promises all taken out against the expectation of growth.

At the same time even the government pundits tell us we are going to have practically no economic growth in the foreseeable future and that inflation is rising at above 5%. And government workers in tens of thousands are being sacked and told to find work in a non-growing private sector. Lewis Carroll would have understood the logic but it’s harder for the rest of us who find living in 'wonderland' increasingly fraught.

Westexas and his analogy of the crew of the Titanic refusing to acknowledge the iceberg or the water seems perfectly apposite to me.

adjusting the previous peak of $104.8 from October 2008 for three years of inflation at 3% per annum provides an adjusted value of $115 in today's money.

With all the monetary interventions I would have to say the effect of inflation on any given commodity is impossible to determine. M2 is up 10% yoy. Governments are busy shoving 10lbs of monetary crap into a 5lb bag. How much of the overflow is going into the nominal price of oil? Anyone's guess.

I think high oil prices will suppress growth, but the effect is a bit more subtle than one might think.

Any given supply chains for goods and services is dependent on:

1) money
2) energy (particularly oil)
3) other supply chains

One part of almost all supply chains is transportation, which is critically dependent on ONE power source (i.e. cheap oil). Even continued oil production depends on a supply chain of cheap oil.

As oil gets more expensive, these supply chains become more expensive to maintain. Eventually some supply chains simply stop (e.g. car parts from Japan), which in turn effects other supply chains (trucks are not built, or built very slowly) and so on.

Once started, the cascade effects spread. I expect the economy to tank rather rapidly after the next price spikes, followed by supply shortages of coal, mechanical parts, food, fuel and so on.

The political and economic elite do not seem to have grasped as yet the links between their economic growth policies and high energy prices that suppress that growth.

Like trying to drain blood to cure a plague victim. Every theory of how the world works hits the rocks at some point. Neo-classical Economics dismisses non-monetary factors as unimportant and Peak Oil will be a sharp rock in the big reef of Limits that the theory founders upon. From the wreckage a new whole will be created to sail into the uncharted (but much more limit aware) future.

For those just joining us there is very solid evidence linking oil prices and recessions in the US. Good post by James Hamilton and lots of linkshere. Since the US gets 40% of its energy from oil, that is logical.

Euan, I think your theory of cheap nat gas in the US is helping. The US uses the energy from nat gas, coal, etc to create goods to pay for the oil. If those energy sources are cheap, it allows some higher oil prices. Murphy and Hall did some work with the cost of all energy sources. It might be worth looking into.

Euan/Jon - I'm not very knowledgeable of macroeconomics so I like to keep it simple. To Euan's point about collapse not happening very fast: perhaps each economy has a number of buffers. Not just energy buffers like the SPR. Some painful buffers: depleting personal savings and unemployment that reduces costs for businesses. Other buffers in between: govt borrowing and selling down inventory at below cost in order to maintain cash flow.

Many have been in the same place personally: unemployed but maintaining BAU to some degree. Outwardly your position may not look that bad. But if your personal buffers (savings, conservation, help from family members/friends) run out at the same time the collapse could be staggering.

That seems to be THE question for all the folks trying to predict the future: how do you measure the endurance of the multiple buffers and their effective life spans? And those metrics have to be balanced with a less than static energy/commodity environment. One example that comes to mind: was the subprime mortgage play an initial buffer that helped offset rising energy prices? That might explain what could have been something of a multiplier effect: either development (high energy costs and subprime melt down) could be rated as (-1) each but combined they equaled (-4).

What would be the next significant buffer to fail: govt borrowing, personal savings depletion, a spike in unemployment, future collapse of financial institutions? Again, as a simple geologist it’s taxing enough to come up with the questions. I’ll leave it to the TOD smarty pants to come up with the answers.

I'm pretty convinced that the world economy is stuck in a trap based on oil prices. Any time there is a whiff of growth, the oil price shoots up and strangles that economic growth.

This situation is going to make things difficult for all high level politicians. Come election time, either the economy will be crappy such that people will want to vote out the leader based on the economy or the economy will be showing some growth but the oil prices will be high such that people will want to vote out the leader based on oil prices. Obama will have a tough re-election fight. And who ever wins will have a tough time making the people happy.

The situation is difficult and there are no easy solutions.

. For me its back to front. It's not the price. Its the net energy growth or relative lack of it. the money goes up and down bouncing around the inside of a system that can not expand at a rate to satisfy the financial metrics. The price is a signal it has trouble expanding rather than the cause of said a lack of growth.... yes there's a feedback thing in there somewhere. But the boundaries are drawn by the access too the energy.

Its easy to get lost in the detail... I think

if that is [I am]wrong then it follows that a major restructuring of finance should be able to liberate more power[literally].

a major restructuring of finance should be able to liberate more power

I think what we need is a major restructuring of energy efficiency and what we use energy for. If we double energy efficiency then maybe we get a doubling of price and that brings on a whole raft of new possibilities. And if we get much smarter in the way we use energy - create more wealth per unit energy used then that may lead to a restructuring of finance.

I'm beginning to think this may take decades of adjustments. We may see a major price reset in the next year or two (or week or two) but I doubt we will emerge from that with infinite wisdom.

At some point population and population structure needs to be addressed to address the demographic problems facing OECD and other countries. We just had a hundred years party. Now comes the hundred year hang over.

I decode that as rationing. Which works for me.

How do you sell it?

95% of TOD wouldn't countenance it

How about a World Wide drive 55, or even 45? Forward looking statements about valid economic and energy concerns coordinated by all the major governments might get buy in from the world population. A worldwide drive 55 wouldn't even be an official rationing, though effectively it would reduce consumption just like an official rationing scenario would. That would free up energy to support employment and production in other vital and critical areas. Major governments could even put out a coordinated statement strongly recommending heating and cooling reductions to save energy but not actually requiring them for a while until really necessary. The slight inconvenience of a 68 degree home or workplace in the winter, or a 80 degree home or workplace in the summer might be welcomed, a little reluctantly, by the masses as long as they can see that almost everyone in the world is trying to do their parts. Avoiding an official rationing scenario would probably be beneficial to consumer sentiment, and anything that helps to keep more people out of austerity would also be beneficial.

On the face of it sound ideas [still a difficult sell]

You have to constrain consumption at the boarders of teh economy or its jevons 2.0

You have to shrink the overall a energy production cap, otherwise what is the point?

OTOH If production becomes physically limited, seems likely.... then Jevons is less of a issue and your suggestions start to make sense. Maybe, but equality requires deeper mandating and a removal of up to now perceived freedoms[too consume]. Your last point is key. It has to be seen as fair. In WW2 rationing was disliked but tolerated because it was seen as [in the most part] ubiquitous.

I was interested in how RR the other day posted about how the doomer scenarios had lost traction. I am starting to move in the other direction. Which I find surprising. I was a peak-lite kind of guy but now I think politics and ideologies are going to throw a rather nasty curveball into the mix, and paradoxically propelled by the non-materialization of what are in hindsight some rather juvenile doomer scenarios . I sense a terrible political power vacuum forming in the abyss created by the failure of the markets.

The thing to note about the oil price is not the level it reaches prior to stalling the markets, it is the fact the volatility in the price switches us on and off every other week between a notion of market re-stabilisation and systemic failure. No one can credibly join the dots in the market. And everyone is looking around for an answer and bizarrely the "most" credible solutions are stop gap ideas still based around the market, Buffet, shale gas and the like.
These solutions "seem" to weave practicality and a new incarnation of market ideology. This austrian school stuff is everywhere. Despite being the same animal. I think we have been committed to this "game changer" gas thing. A new horizon we will all be sold is just around the corner. In the mean time the ground beneath our feet turns to quicksand. The initial round of competition of ideas on what to do is over and has I think been won for the time being by a combination of deep market ideology and unconventional fossil fuel development.

There is strong evidence that production has already reached the limit, so Jevons would seem a mute point. Peak conventional oil has been accepted as having occurred several years ago, so yes the suggestion to free up energy for more jobs by reducing global speed limits starts to make a lot of sense. So far, a self evident and successful government/business policy that results in the macro creation of jobs hasn't seemed to materialize as evidenced by the high unemployment and austerity policies being pushed in so many places and at so many levels (city, county, state, country, and corporate). If USA, Russia, China, England, Germany, France, etc., ... all come out at once and say drive 55, 50, or 45, and that it will help things to get better on a macroeconomic level, it gets easier for people to buy in and to be more optimistic too.

I am not against the idea you understand.

Yes I understood. And I also understand that getting buy in from any consortium of governments up front might not be easily done. Maybe if one or two governments were to take the drive 55 initiative by themselves, etc, and put out press releases supportive of the wisdom and benefits to be gained from a wider adoption of that policy by other countries, maybe it could snowball to most countries then.

hasn't spain already done something like this?

They did, when Libya went off-line. The speed limit reduction was reversed 3 months later. It was claimed to be a modest success.

Or maybe not. During the 55mph period in the USA, the European countries generally did not lower their speed limits much if at all. Europeans visiting here, and suddenly contemplating distances and open spaces utterly unknown to them back home, in any day-to-day practical sense, tended to treat it, more often than not, as just the sort of risible, sick joke that only "crazy Americans" would undertake given those circumstances. (I suspect that many Americans associate it with what they might see as a whiny and ineffectual Jimmy Carter, even though it was instituted under Richard Nixon...)

IIRC during the 73 crisis the speed limit was dropped to 50mph in the UK

Since I never saw my father drive faster than 50mph ever, I'm not sure if I remember this limit or not.

He sold his car last year, aged 89.

The other "crazy American" idea is that of everybody driving PU's and SUV's for their single passenger commutes.

The problem is not the speed limit, it is the vehicles being used. A Prius at 75 mph is still far more fuel efficient than an F-150 at 55, as is almost any passenger car, from subcompact to midsize.

I see more comments from Euros about the ridiculous number of oversized vehicles driven with one person in them, than about anything else - and rightly so, IMO.

The only the way the large vehicles are efficient is if they are either full of people and/or cargo, or sitting in the driveway, unused.

If everyone was driving vehicles with Euro diesel type efficiency, so much oil would be saved that you could raise the speed limit and still be way ahead.

Before thinking of worldwide regulations, how about the US taking care of itself and of its own survival a bit ?

Like a $2 tax a gallon at least, that would still put it behind most OECD countries regarding volume based gas taxes.

And it works : European fossile fuel use per capita around half US one.

Note : the excuse"but we are a big country" doesn't fly, a times 2 more efficient car is a times two more efficient car, whatever the number of miles driven.

The only valid excuse is : but our "defense" budget is our current gas tax, which indeed is true more or less.

And again this is purely selfish self interest based : lowering trade deficit, pushing products adaptation

Yes, taxing is smart especially if there is still a lot efficiency to gained. If the US halves oil use they'll be more resillient to higher prices and they'll be able to use existing sources twice as long. Start now, there is a lot to be gained.

If we double energy efficiency then maybe we get a doubling of price

How about if we just kick the oil addiction? Replace ICEs with EVs, replace longhaul trucks with trains, then electric trains and electric short-haul trucks, for instance?

"This situation is going to make things difficult for all high level politicians."

Expect the Obama camp to attempt a nice stimulus package (not called that, of course) to get a short term boost in economic activity and an equal and opposite effort to not let that happen by the GOP. The GOP wants the economy to be failing come election time and will do anything (or, more precisely, do nothing) to prevent it.

The US political system is obviously unable to handle the coming global economic crisis and will most likely be torn apart by angry citizens. To be replaced by what, is the unsettling question.

As far as I see it we have reached peak conventional oil, and recent all liquids growth comes from defining more and more energy sources as 'oil'. Tar sands is reasonable, NGL is marginal, as it can only substitute for some fractions of conventional crude, (as witness the growing shortages of diesel fuel) and biofuels are downright fraudulent, as they are biological, with barely positive net fossil energy supply, low energy density and actually reduce the energy content (by volume) of the final product.

In fact, the net energy of the global oil supply is probably now in decline, and the world economy is rebalancing to reflect this reality, with oil efficient economies growing and inefficient ones (The OECD) in sharp decline. The US situation is partially balanced by cheap NG, the SPR, and huge military, political and economic inertia.

Europe is heading rapidly for financial meltdown, and the Euro is on death row. The UK is now also heading into double dip recession, a fact even the Tory government recognises, and has just announced further welfare spending cuts to fund a 'stimulus' package of about $30B of - you guessed it - new roads and airports. And it has cut the tax on petrol.

Mainly agreed. Peak in conventional crude is close or passed. Some NGls are OK. Temperate bio-fuels are principally secondary and not primary energy. Refinery gains are simply volume and not energy expansion of the refined stock.

Petrol tax has been deferred, not reduced. But overall the package of measures with roads etc is symptomatic of denial. The problem is recognised but the means to fix it elusive.

Osborne does get a degree of sympathy. He can't just stand up and say we are going to abandon the growth mantra and our FF based economies. But he could fund £50 billion worth of CHP and renewable heat instead of roads and airports.

In Scotland (where the Sun seldom shines in any case) we are now fitting solar panels on N facing roofs! I kid you not. One of the vendors phoned me yesterday (sales call) and when I explained that what they were doing with government subsidies was disgraceful I was told that simply daylight was adequate for PV systems, direct sunlight did not matter. Any comments or charts?

ROFLMAO. I don't have a light meter handy and it's not sunny anyway, so I'm unable to make a precise direct comparison on the spot. However, on a cloudy day one might get 1/6 or less, possibly much less, of the sunny-day output - and even that much only if it's a rather high quality panel (high shunt resistance); polycrystalline panels, especially older ones, may well show a uselessly low terminal voltage. I'd expect even less from scattered skylight since it's normally quite dim - and also because it's blue, which is poorly utilized both because most of the energy per photon goes to waste given the small Si bandgap, and because blue photons are poorly absorbed (in the useful mode) in the first place. Given the number of south-facing locations that don't have panels, it seems to be, well, let's be honest, quite an incredibly stupid form of investment, but then again what can you ever expect from government?

The bottom line: maybe those same governments and sales people will soon be flogging solar panels for use in moonlight?

Well, some people here report that solar panel output goes up when clouds pass so it would be interesting to see what the output is. Also, someone reported a solar panel that output 2A in moonlight.


My 400 watt (nameplate) 3 panel system with 24 volt battery back-up, on a south facing roof of 1 in 3 pitch has just this month been unable to keep a 13 watt CFL lighted for 5 hours per day.

I live near Seattle.

Valentin Sofware have two online handy calculators for working out total yeild for PV an Solar thermal on an anual basis.
You can vary the inputs. I have found them to be reasonably accurate you can also download trial versions of their sotware . North facing give an anual drop off ~55% over due south with little or no out output from Aug-March . Solar thermal grants were not eligble here if they were not between east round to west as yield was too poor

$30B of - you guessed it - new roads and airports. And it has cut the tax on petrol.

Is that really the case ???

What the f*** is David MacKay doing ?

I mean, his book is most probably the most realistic, to the point, accurate source regarding energy aspects these days.

If anything the tax on petrol should be increased of course.

For sure a lot of transparency also has to be put in budget usage, but overall the direction should be : increase taxes on fossile fuels and maybe some other raw materials, reduce taxes on work.
(and increase taxes on top revenus and capital revenus, if there is a way to close the tax heavens revolving doors ...)
And have "economists" say under a gun if necessary, that they don't understand anything, and that their "science" is completely rotten since XIXth century at least in considering capital value of raw material as zero (Friedmann and Marx being in perfect agreement on this one by the way)

OK some of the money is to be spent on railways, and it was a cancelled tax rise, not a tax cut. But the rest on oil powered transport systems.

David MacKay must be a very frustrated man. By taking the Queen's shilling, he is effectively neutered. He cannot express opinions on government policy outside of officially approved government channels.

But he isn't anymore an adviser in Cameron government no ?

I'd prefer to see MacKay engaging more in how we get through to 2020 as opposed to the focus on 2050. I think it is also the case that advisors give advice that is taken or left by political masters.

I have a question that has been puzzling me for some time.

It seems that most of us think that oil prices are constrained by demand in such a way that oil cannot rise above a certain price range before so called "demand destruction " causes the sale of oil to fall off so sharply that the price collapses back to (temporarily ) affordable levels.

This seems entirely reasonable to me.

However, some claim or speculate that the highest possible price that can't be very much if at all beyond perhaps one hundred to one hundred fifty dollars per barrel in constant money.Some would argue that even one hundred dollars is to high , and that the economy will therefore shrink.

It is easy to see that potential producers whose estimated costs will continue to be potential rather than actual producers so long as prices remain in this range.

It is also easy to see that existing fields will be produced even if prices fall way off, since the day to day costs are minor in relation to the sunk costs of developing such existing fields, and less than the value of the oil produced, thereby generating some cash even if there is no actual profit earned.

But I simply don't see any reason WHY oil prices CANNOT rise considerably higher than a hundred fifty per barrel in constant at some future time.

I have remarked that regardless of my overall financial situation, I will gladly pay twenty dollars per gallon for diesel before I will do without;in terms of utility, that diesel in priceless to me.

Now even in a world economy that has crashed, there will still be plenty of purchasing power-nowhere near enough to pay this kind of money for eighty million barrels a day of course.

But there might be enough remaining demand to pay two hundred constant dollars-or even three hundred- for say thirty million barrels.

And thirty million might be all that can be produced within the foreseeable future for a number of reasons.

I can easily visualize a number of scenarios where that is all that is available, these scenarios involving a combination of depletion,, national policies forbidding export of more than minimal amounts, and political turmoil up to and including war.

We must remember that as we cut consumption, every gallon becomes more valuable than the last.

What I'm looking for is a counterargument that "feels" airtight.

I don't believe demand destruction has been proven to trump the increasing utility of smaller quantities of oil, although so far it seems that way-but so far, we still have lots of producers who are making huge profits, and can keep on producing even if prices crash.

This situation will not last forever.Such producers will become fewer as old developed field fields deplete, and new fields are obviously more expensive to develop.

It looks to me as if at some point in time ,possibly not to far off, the price of oil can rise even in the face of a declining economy.

I'm looking at the mid to long term in posing this question.The conventional wisdom seems to explain the short term very well.

At the top of the thread, I showed normalized oil consumption for China, India, the top 33 net oil exporters and for the US, from 2002 to 2010, as annual Brent prices rose at about 15%/year.

WT,I have been following your comments and I'm convinced that someday you can -if you want to- be on the biggest talk show on tv saying "I told you so" years ago.

I don't suppose prices can rise THAT fast for another decade.

But who knows?

It would be unreasonable of me to put you on the spot demanding a price prediction for say the year 2021.

Still, there are others here who are either pros or semipros, and some of them may be willing to speculate.

Of course as an amateur I can prophesy like Deets the Texas Ranger in Lonesome Dove.He prophesied "hot and dry " in respect to Texas weather.

I can prophesy high and scarce easily enough myself, even though my oil expertise is basically limited to what I have learned here on TOD.;-)

Front page WSJ story yesterday: “U.S. Nears Milestone: Net Fuel Exporter”

For 2011, it appears that the US is on track to be net exporter of refined petroleum products, on the order of about 0.2 mbpd. Although the WSJ reporters did note, several paragraphs into the story, that the US remains the world’s largest net oil importer, in both terms of crude oil and total petroleum liquids, I suspect that many casual readers will conclude that the US is now a net oil exporter.

We have of course seen increasing US oil (and gas) production. If we look at the pre-hurricane production data in 2004, versus 2010, US total petroleum liquids production rose from 7.2 mbpd in 2004 to 7.5 mbpd in 2010, an increase of 0.3 mbpd (BP). Note that BP does not count biofuels and refinery gains in the production numbers.

Over the same time frame, 2004 to 2010, US consumption fell from 20.7 mbpd to 19.1 mbpd, a decline of 1.6 mbpd. Based on the BP data, US net oil imports fell from 13.5 mbpd in 2004 to 11.6 mbpd in 2010, a decline of 1.9 mbpd. Declining consumption resulted in 84% of the 2004 to 2010 decline in US net oil imports.

Therefore, the primary contributor to the US becoming a net exporter of refined products and the primary contributor to the decline in US net oil imports is declining consumption in the US, as the US and many other developed countries have been forced, post-2005, to take a declining share of a falling volume of Global Net Exports (GNE), which are calculated in terms of Total Petroleum Liquids.

So, the WSJ reporters are taking a symptom of Peak Exports, i.e., declining US oil consumption, and presenting it as a positive story.

There are apparently 196 countries in the world. If we assume about a half dozen inconsequential net oil exporters, in addition to the top 33 net oil exporters that we studied, that leaves about 157 net oil importing countries. So, if we extrapolate current trends, just two of these net oil importers, China & India, would consume 100% of the global supply of (net) exported oil in only 19 years, leaving nothing for the other 155 current net oil importing countries.

I continue to be mystified that this factual statement is not the #1 story in the world.

Here is an interesting comment from a blogger on The Oil Drum (tye454):

“ . . . the government and banks are going to pull every trick or lie or cheat that they're able to, because the alternative is their very own destruction.”

I suspect that this is one of the primary reasons that we will probably never get most government officials, members of the MSM, etc. to actually acknowledge the reality of Peak Oil/Peak Exports. It is of course related to the famous Upton Sinclair quote, "It is difficult to get a man to understand something when his job depends on not understanding it."

I think that we are seeing cognitive dissonance on a global scale. Government officials, the MSM etc. generally refuse to acknowledge resource limits. It's as if, once the Titanic hit the iceberg, the officers resumed the voyage, and ignored reports of flooding.

Truly impressive this one ...

(and also got it quoted to me in a non oil related forum where I mentioned peak oil ...)

But somehow, seems to me all the comments on MSM articles are a quite good medium to pass the message, and not only on oil or energy articles, also on financial crisis articles like "did you know the basic reason of the crisis is the oil production peak ? Did you know all oil shocks led to recessions and we are in the "mother of all oil shock" stuff like that, or bare simple facts US peak 1970, north sea 2000, Mexico 2005, things like that.

More or less peak oil forums become kind of "closed group therapy stuff", simple messages in comments with one or two links if possible also efficient most probably.

And I find the picture a bit different in France : several key guys already mentioned it (politics or industry), also in other countries Sweden I think it is rather official.

In fact what is behind all this, is the lie by ommission regarding the US having been through its peak in 1970 (41 years ago already), much more than global peak aspects even.

And for sure much tougher for the US than for a country that almost never had any to begin with, and with always the "hopes" regarding new plays shale oil and the like (besides having been at the origin of oil usage and expension).

But each year makes this lie by ommission tougher to get around.

Too bad James Akins not there anymore, could have put this straight maybe.

the WSJ reporters are taking a symptom of Peak Exports, i.e., declining US oil consumption, and presenting it as a positive story.

It is a positive story. The US is becoming more efficient, cutting out low-value oil use, and finding substitutes for oil. This is good news. And, it is a bit of good news that the US can cover all of it's refining needs.

OTOH, I agree that the story is misleading - most readers will come away thinking that the US is an oil exporter.

apologies to the editor for the veering from topic here but I just got back to town and a couple points Nick attempted to address a couple weeks ago needed addressing and this looked to be the only open thread Nick is monitoring.

how do you develop the mine completely electric?

Two things 1. we were discussing copper mines not coal, copper mines do not produce fuel for an on site power plant and are generally very remote 2. the electric hauler in your linked picture was driving on a road, the building of which for the foreseeable future will be relegated to ice rigs. Incredible amounts of gravel must be mined, crushed and hauled to build 50-100 mile long remote roads.

Hard wiring it all would be possible, but that creates a greater demand for copper.

Aluminum would work just fine.

no doubt aluminum does just fine for larger lines (larger being relative to standard house wiring) but making more aluminum requires more electricity. Electric motors will continue to require copper, more motors more copper. Last I heard an industry analyst said we would need another half dozen mines the size of Pebble before 2030 to meet copper demand.

The issue is not whether it is possible to electrify a huge chunk of transportation, mining and heavy construction that is now fully fossil fuel dependent but rather whether it will be done in a timely fashion before constricted oil supplies push up system costs beyond what economic critical activity levels can handle. Because coal delivers power to invested dollar more quickly than other sources do it will likely remain the big go to fuel source in the push to electrify. I don't see that as a particularly happy scenario.

copper mines do not produce fuel for an on site power plant

I could be wrong, but I think few coal mines get their power from on-site coal generation.

are generally very remote

Powder River strip mines are pretty far from civilization. Chilean copper mines are pretty well industrialized.

road, the building of which for the foreseeable future will be relegated to ice rigs

Or EREV rigs, with swappable batteries.

Incredible amounts of gravel must be mined, crushed and hauled to build 50-100 mile long remote roads.

Tracked (or wheeled) haulers don't operate over long distances - they're typically internal to the mine, right? Long distance transport will be rail, mostly.

aluminum does just fine for larger lines (larger being relative to standard house wiring)

Aluminium does just fine for house wiring, as long as you're moderately careful with your terminations.

making more aluminum requires more electricity.

True. But, we don't have a shortage of electricity.

Electric motors will continue to require copper

Electric motors can be built with aluminium:

The issue is...whether it is possible to electrify a huge chunk of transportation, mining and heavy construction...before constricted oil supplies push up system costs beyond what economic critical activity levels can handle.


First, it can be done reasonably quickly - the bottleneck will be ramping up battery production. Personal transportation is 50% of oil consumption in the US, and 50% of miles come from vehicles less than 6-6.5 years old.

2nd, oil supplies aren't dropping quickly: Aleklett projects that world liquid fuel supply will only drop by 11% by 2030.

Because coal delivers power to invested dollar more quickly than other sources do it will likely remain the big go to fuel source in the push to electrify.

New coal plants in the US are large, take longer to build than windpower, and have large pollution control costs (just for "criterion" pollutants, like sulfur and mercury). In an uncertain political climate (pun intended) they have a high risk component for investors. Their overall cost is such that cost per kWh is really very comparable to that of windpower.


The bottom line for mining is that it's a relatively small percentage of oil consumption, and if necessary it can outbid other uses for a very long time, more than long enough to transition to a new infrastructure.


I do not post often, but wanted to mention that I enjoy your posts. You are very modest with your "I am no expert", which may be true, but you offer many of the most insightful comments on the Oil Drum. I have some knowledge of physics (BS) and economics (MA), but also am not an expert. The price of oil could certainly rise as you suggest and possibly reach an equilibrium at say $200 (in 2008 dollars) at some point in the future with a lower total output (like the 30 mbd you suggested). The question that arises is what the US economy would look like if it was only using 7 mbd instead of 20 mbd. Clearly we would be driving less, would be less apt to buy large SUVs, more likely to walk or ride a bike, or a bus and so forth. We might change indoor temps (65 winter and 80 summer). It is very unlikely that BAU would continue and we will likely collapse especially without some prior planning and action to mitigate our energy decline. The severity of the collapse seems dependent on how quickly we move from 20 to 7 mbd. Hopefully we will begin to realize that more roads and bridges are not as good a social investment as low carbon energy sources. We could also use significant R and D into the transition from fossil fuels to wind, solar, nuclear, hydro with natural gas as our main transition fuel as oil depletes. This all needs to happen while focusing on efficiency as EM points out upthread.


As someone with an MA in economics you should post more often. We love to get the academic view once in awhile.

Sure we could do with less. We could drive less, we would consume less goods and services. Yes we could cut the fat and live very frugal on perhaps less than half what we consume now. But everyone seems to completely overlook the consequences of such frugality by the public. And those consequences were not mentioned in your post either. If we cut to half what we consume today then people producing that half would be unemployed. It probably would not be half the workforce but it would be close.

People are employed producing or servicing the fat we would cut. And if all those people were unemployed it could very easily have a snowball effect. If the employed cut by half their consumption then the unemployed would have to cut their consumption to the bone. States would be hard pressed to pay unemployment insurance. They would have to cut their budget, laying off necessary workers. Then when their unemployment insurance ran out, or the states went bankrupt, things could get really bad.

But people who talk about what we could do without never seem to think about all those people employed producing the things we would do without. That's thinking the problem through half way.

Ron P.

People are employed producing or servicing the fat we would cut

You mean people in China? I don't think stuff gets made outside China these days. Seriously though even most consumer goods manufactured outside China will have components that were manufactured in China - it's almost a certainty.

I hate to put a damper on globalisation but it's about time we started making stuff again! balance that HUUUUUUUGE trade deficit......oh dear I only half though that through. thatt means my new 50in flatscreen would have cost me 586% more than it actually did.....dang I knew there was a catch...


On the whole, it is likely that we will either drive less and consume less either in a planned and somewhat voluntary method, or forced to by definition as a result of depleting resources and due to the downstream physical limitations that resource depletion causes. I suspect that with a zero sum game, that any energy freed up due to policies that reduce consumption in some areas will readily flow to other areas that will benefit from them and that might help to reduce unemployment in ways. Running the world engine at redline until a proverbial piston is thrown should be avoided. A governor on the engine that keeps it stable is a good investment, even though that governor introduces a speed limitation and we desire to go faster. Yes, there will likely be some job dislocations in some areas of the economy by reducing consumption in planned ways. But likely no worse than existing job dislocations due to credit and debt issues. The credit and debt issues just might be in reality a downstream effect to the already existing resource depletion pressures or even soon to be expected resource depletions.

I am reminded of a scene in the movie "The Outlaw Josey Wales" where granny realizes she has a predicament and is not happy to be riding with the notorious Josey Wales who just saved them from a raiding party. The Indian Chief succinctly asks Granny :

Lone Watie: Would you rather be riding with Comancheros, Granny?
Grandma Sarah: No, I wouldn't.


You make an excellent point, a reduction in consumption reduces income ceteris paribus. I was not suggesting that all consumption would be reduced I was focused on energy consumption, particularly fossil fuels (especially coal and oil). Let us assume that total demand does not change, but that people spend the money saved on energy at restaurants, on a more efficient car, a bicycle, or shoes.

People could change their preferences so that money spent on transportation and coal power plants are spent on other goods and services. To move us away from higher carbon energy these might be building energy efficiency measures, wind turbines, solar energy (of all types pv, csp, dhw and passive heat), HVDC transmission placed so that intermittant energy sources can complement each other more easily, R+D on next generation nuclear, renewable energy, and energy efficiency, and building out nuclear, especially newer systems (see latest GE/Hitachi design).

How might consumer preferences change to promote substitutes for fossil fuel? For those who prefer to let the market pick winners rather than getting the government too involved, a revenue neutral carbon tax set at an appropriate level may make the most sense. To make it simple take the full employment government tax revenue under current law and divide by the estimated carbon emissions at that full employment level of GDP (we could use the carbon emissions from july 2007 to july 2008), that would give us the price per tonne of carbon. As carbon emissions decrease the carbon price would need to increase each year to maintain government revenue (all other federal taxes would be eliminated under such a plan). It might be enough to get us started in the right direction, but I can't imagine that such legislation would have any chance of becoming law.

If there were some decrease in consumption and investment, government spending could offset this by building railroads and light rail either directly or by means of tax incentives (I am mostly thinking along the lines of Alan Drake in this sentence). Investments in combined heat and power and a smart grid would also help to keep people employed.


I was not suggesting that all consumption would be reduced I was focused on energy consumption, particularly fossil fuels (especially coal and oil). Let us assume that total demand does not change, but that people spend the money saved on energy at restaurants, on a more efficient car, a bicycle, or shoes.

DC, I think you totally misunderstood the gist of my post. People would not be voluntary cutting back on consumption of anything. I was suggesting that as the oil supply drops prices will increase to make demand equal supply. There will be less oil and at the same time less money to spend because people will be paying a lot more for oil and oil products.

There will be an involuntary cut back in consumption purely due to people having less money to spend. This will lead to unemployment. That is exactly what is happening right now. The official unemployment rate is hovering around 9% but Shadowstats says it is closer to 23% And it is largely because of oil prices above $100. And if oil goes to $150 a barrel expect the unemployment rate to move 10 points higher. And if oil goes to $200 a barrel expect the economy to collapse because unemployment hits 50% or better.

Ron P.

Hi Ron,

You are correct, I completely misinterpreted your post. Sorry. I am going to stick with official unemployment numbers for now, and I agree it is very bad (not sure about 23 % which is great depression levels, but very bad without a doubt). Let's make some simple assumptions for easier exposition. If oil goes to 200 that should roughly double gas prices to around $7/gallon, clearly other prices would rise as well, but I don't think the over all price level would double. As I am sure you know, in the short term demand for gas won't change that much if prices doubled tomorrow and people would as you suggested spend less on other stuff. Over time as people came to expect higher gas prices, they would adjust their behavior and they would do some of the things I suggested in my previous post (drive less, carpool, ride the bus, bike, walk, buy a more fuel efficient car, etc). Now as someone suggested above we could raise taxes on fossil fuels like European countries (where $7/gallon or more is standard due to higher taxes), we could also reduce speed limits as michael the engineer suggested (though this might not be necessary if fuel taxes were high enough).
Let's suggest the following as an example. I used to drive a Toyota Camry and got around 25 mpg, now I drive a Prius and get about 50 mpg. Let us assume the average driver in the US gets about 25 mpg and gas prices double (and people believe in peak oil and that prices are likely to stay at that level or go higher). Now all new car buyers will be more likely to get a car that gets 40 mpg or better, if they choose the 50 mpg prius, how much will their spending on fuel increase if they drive the same number of miles per year?

I have no doubt that higher oil prices are contributing to economic problems, there was also a mortgage crisis, a financial crisis and I am confident that all of these are part of the current problem. A much larger fiscal stimulus especially one that focused on our energy problem and the mortgage and banking problems (rather than just roads and bridges) than the one passed in 2009 might have gotten us out of this mess. At this point we will have to wait until after Nov 2012 for anything to happen.

Rather than wait for oil to double in price, lets double it now by taxes and do away with most other federal taxes. If we put a $100/ barrel tax on oil that would bring in 2 trillion in revenue if we still consume 20 mbd, that is pretty close to the current revenue, any shortfall could be made up with a flat tax on all income over 50,000 per year. This idea has the problem of being quite regressive and would probably need to be tweaked or maybe phased in gradually (start with 10 per barrel and double every year until tax is equal to price per barrel).


Rather than wait for oil to double in price, lets double it now by taxes and do away with most other federal taxes.

DC, great idea but it hasn't a snowballs chance in hell of ever happening. We peak oil aware folks are a tiny minority. No one listens to us. We are just observers in this drama. What will happen will happen and we are powerless to affect it in any manner. I think we are headed for a catastrophic collapse. Perhaps not but we can only observe and hope for the best. But what is the best? That's another subject for another day.

Ron P.

As Richard Heinberg observed, Energy is the Economy. With Americans obsession with making money, a tax on energy is equivalent to, well, the end of the world.

Only if they're listening to Fox news.

Energy isn't the same thing as oil, or even fossil fuel.

Note that the official U6 is in the 15% range. It probably reflects much better than the headline rate what most people intuitively think of as unemployment, as well as what used to be regarded as unemployment some decades ago.

Yair...I have posted before about a friends trip to Laos where he saw a huge Chinese funded industrial development being constructed...he's in the excavation/construction business and he does know his bickies.

He saw two economys/methodologys in play and we can't figure out how it works. Underground pipes and services were being laid...some by "contractors" with small track-hoes or back-hoes much like his own and others by "contractors" who arrived on site with twenty or thirty blokes on the back of a ten ton Hino or Mitsubishi tip truck.

As far as he could see both outfits were doing the exact same excavation work. The mechanised outfit had an operators on the machines, a couple of labourers/grade chechers and monthly finance payments and fuel and parts and breakdown costs.

The manual outfit just had the tip truck and heap of workers who could be laid off at any time. He reckoned they appeared happy, had cell phones and music machines and butane cookers to heat their lunch indicating they were earning that live a decent life.

How does that work then?


The manual labour outfit only employs fit men. If they get injured they get no work. After 20 years their joints are worn out and they are out on the scrap heap. But they are young, and the money is better than substance farming, so they are happy.

The men on the tractor don't need to be fit. They get 3 times the wages of their manual counterpart, and they are semi-skilled. However, the job is done in one third of the time, so the income balances out over time between jobs. Sitting around all day they get fat and they suffer diseases of affluence after 20 years, so they don't live much longer than their manual counterpart, not least because they breathe in diesel fumes all day long.

I got my driveway repaved here in the UK recently. I expected a man with a mini-backhoe to come and tear up the old concrete. I got two men with pickaxes, and it took them twice as long, but they got the job done for the same price.

It seems that most of us think that oil prices are constrained by demand in such a way that oil cannot rise above a certain price range before so called "demand destruction " causes the sale of oil to fall off so sharply that the price collapses back to (temporarily ) affordable levels.

Well that's what happened in 2008 but it doesn't have to happen like that. Prices can rise to a point where demand exactly equals supply and stay there for some time. That appears to be what is happening right now. If supply rises then prices will move down but not collapse. If supply drops then prices will rise until demand drops to meet supply. That is what is normal. What happened in 2008 was really an aberration. That aberration was caused by market mania and then the onset of the greatest recession since the great depression.

But I simply don't see any reason WHY oil prices CANNOT rise considerably higher than a hundred fifty per barrel in constant at some future time.

One hundred and fifty dollars is just a WAG number. It could be two hundred or something more or less. But there is a number, sliding up with inflation, where prices start affecting consumption more dramatically. People stop doing things they normally do because they cut down their driving and extra spending. This affects the economy, causing it to slip deeper into recession.

And if, or rather when, production drops even further prices will rise to levels that it drives the economy into an even deeper recession, perhaps a depression. Then prices will have to decline, perhaps not as dramatically as in 2008 but decline nevertheless. There is a point where people will not, or cannot afford to buy petroleum products because they simply cannot afford them. That will be the point oil prices stop rising and start to fall.

Mac, you cannot possibly divorce oil prices from the economy. They go together like hand in glove. Falling oil supplies accompanied by higher oil prices will have a detrimental effect on the economy. And the economy will likewise affect the oil prices.

It looks to me as if at some point in time ,possibly not to far off, the price of oil can rise even in the face of a declining economy.

Of course this is possible but only under very rare circumstances. Suppose the economy is in shambles and we develop a two tier economy, a few very rich but the vast majority are dirt poor. Then such a scenario as you propose could come to pass. Perhaps it might but I do not believe it will happen in the next couple of decades in the developed world. Of course some third world countries have always lived like this.

Ron P.

Morgan Downey (author of Oil 101) has a nice article discussing the idea that the maximum price for oil may rise as total production falls. He basically argues that oil can consume about 4% of the world economy before causing a recession, so shrinking oil production means more $ per barrel to hit that 4%.

There are other things that would allow the price of oil to climb. If a company doubled the efficiency of using oil, it could afford twice the price and its cash flow would remain the same. Now getting more efficient takes investment that must be paid for, so oil prices could not really double.

Also as non-productive consumption is driven out of the economy the price will be able to rise. I think this is how China is winning imports from the OECD.

An increase in energy generation by other sources displacing oil will also allow the price of oil to rise. So if the non-oil based economy grew, it could afford to pay a higher price for oil.

There are things which would drive down the price. A rise in other energy costs would make paying for high priced oil more difficult. A drop in efficiency (to gain resiliance) would make prices fall. A shrinkage in other energy sources (say turning off the Nuke plant early) would drop the ability to afford expensive oil.

Those are a few thoughts.

OFM - I don't think you'll find an counter-argument that feels 'airtight.' After all, you have many poor and middle income countries that 'sustain' high oil prices because their gov't's subsidize the end consumer cost. Venezuela and Iran are good examples of countries that are next exporters that benefit from and ease the burden of high oil prices. OTOH, countries like India are net importers who also subsidize petrol prices to ease the pain for the consumer.

Of course, the subsidy for end use doesn't mean the oil is cheap. Indeed, I think that if gov'ts were willing to subsidize end use (and prioritize that subsidy over, say, road maintenance), the world economy as a whole could 'withstand' high oil prices. As you pointed out, the utility of use determines the price paid. That $20 gallon of diesel may hurt the wallet, but the work it performs is still useful to you. Here in the US, we already highly subsidize the price of oil, both by externalizing the costs, keeping the gas tax low, and allowing billions of dollars in annual tax write-offs. So for our economy (as currently organized), the wiggle room to compensate for high oil prices is less. Which I think (I may be wrong) is why the claim is that $100 oil causes recessions in the OECD.

In fact, the world is sustaining high oil prices now, and growth in the BRIC countries (for example, though Russia may be an exception) is continuing at pre-recession levels. Sooo... Conceivably, if OECD economies functioned more like middle income economies, the world economy might be able to sustain $200 or even $300 per barrel.

I think there is no counterargument that is airtight, just because you are right. (Also, you possibly misunderstood the opinion of lots of people.)

People say that the price of oil is limited because people can't pay much more, because that is the correct model for the short term. If you want a longer term model, you should look at the "increasing volatility with increasing lows and highs", I don't remember the author. And, of course, at the long term price goes up smoothly with reduced supply but you'll have to average decades to get there.

I think you're right that in the longer term the price could go quite high if no substitutes are found for some important uses. Consider that according to this:

Every sizeable town had a store devoted to a variety of lamps and lamp fuels and a "manufactory" for fuel. By 1850 a consumer had a choice of:
- camphene or "burning fluid" -- 50 cents / gallon (combinations of alcohol, turpentine and camphor oil - bright, sweet smelling)
- whale oil -- $1.30 to $2.50 / gallon
- lard oil -- 90 cents (low quality, smelly)
- coal oil -- 50 cents (sooty, smelly, low quality) (the original "kerosene")
- kerosene from petroleum -- 60 cents (introduced in early 1860s)

This was at a time when many workers were paid on the order of 50 cents a day, so draw your own conclusions, or rather, underline the one you've already drawn. You were commenting on a high value use, and, similarly, they had a high-value use - namely lighting. OTOH frivolous driving around the countryside, flying to superfluous "conferences", etc., weren't options for them. IOW it's surely "some of both". Low-value uses fall away as price goes up, and that has a depressive effect that pushes price lower than it might have been if quantity supplied and demanded were perfectly inelastic to price.


5 ) The theory that high oil prices lead to recession in the OECD may be incorrect.

I am not yet ready to declare a link between high oil / energy prices and recession as dead and my continued perception is that these persistent high oil prices are suppressing growth throughout the OECD and that it is this absence of growth that is in part responsible for the inability of certain European nations to service their debts. The unsustainable high nature of these debts is of course a major part of the problem too combined with the fiscal structure of the € zone that forbids participation of the European Central Bank in primary bond markets. Even if the € crisis is "solved" I believe we will see the peripheral EZ countries limping on with low or negative growth, burdened by high energy prices.

I think of it in these terms.

The low oil price caused the recession.

It was cheap energy that allowed growth to to manifest itself as a unstoppable force in the global economy. Which in turn lead to financial over-stretch.

Whatever particular reason you want to home in on as being specific to Lehmans falling over is almost irrelevant. It was the set up for the fall that created the potential for the crash... no over stretch no crash

The creation of the bubble itself must be in part a reflection of cheap energy access [or lack of].

if this is not true then in effect there is no energy crisis and a financial restructuring is possible. I don't believe it.

Yes, I'm on the same line more or less.

The mountains of debt are nothing but the side effect (or projection) of the belief in eternal growth, belief itself fueled (or reassured) by cheap oil and cheap energy in general. Then even if the belief remains, the conditions for it to be verified aren't there anymore, so some things break up that can appear unrelated.

Its as thou people are analysing slices of the moment and trying to determine how things happening in this moment will create the future. And when reviewing the past they still keep this mentality

A causes B causes C causes D

but why is there a A in the first place? And this is why I'm downbeat. the problem is so fundamental and so rooted in the assumptions it is very hard to see how we address that.

I think this shows in a failure of the PO crowd to form a coherent political message. other voices have grasped whatever tools and ideas they have lying around and formed a much more seductive vision simply by the virtue of having one!

Okay, where to start? First there is no PO crowd, there is a diverse group of people who are peak oil aware. We are liberals, conservatives, libertarian, tory, or whatever. We are not a political group and have no political message. Some do of course but some others have the exact opposite message. And that is just the way it should be. We are not a movement but something closer to a study group.

Yes, a study group, like the Association for the Study of Peak Oil. We want to know what is happening and why it is happening and perhaps even to make others aware of peak oil. But politically what would that imply?

Currently we have one US congressman and one US senator who are both keenly Peak Oil aware. They are the very Right Wing Republican Roscoe Bartlett, congressman from Maryland and Democrat Senator Tom Udall of New Mexico. Political opposites but both very peak oil aware and both trying to make other government members peak oil aware. But with not a lot of success I must admit.

Bottom line, being peak oil aware is not a political position.

Ron P.

I rest my case.

No, you lose your case. You said: "I think this shows in a failure of the PO crowd to form a coherent political message."

There is no failure, this is the way it should be. Scientific awareness is not a political position.

The fact that one political party is habitably more scientifically ignorant than the other still does not make knowledge of science a political position. That is just the way things fell into place. It is the strong religious influence into that particular party which influences their scientific ignorance. But that is just the way it is, something we must learn to live with.

However that does not mean that we must drag peak oil awareness into the political spectrum. I think it is best that we keep it apolitical. Well, as best we can anyway. The fact that the lions share of peak oil deniers are on one side of the political fence is also something we will just have to live with...

And vote against them in the next election. ;-)

Ron P.

well you can be the winner if you want...... no I withdraw that as it is an invite to something stupid

The thing is how scientific is this discussion or even the OP?

the entire site is riddled with presumptive politically charged dogma surrounding economic metrics which I hold are in effect arbitrary political and unquestioned at a fundamental level.

this underlay of what on inspection is a rather nebulous scram of economic rhetoric stems from an historic [political] world view and is so overwhelming in nature ANY opposition to this view is seen as unscientific!

an extraordinary state of affairs.

I ask you in all honesty to re-examine your insight into the nature of the discourse that has evolved here and elsewhere.

edit sorry about the prose I'm a idiot

Doc – “the entire site is riddled with presumptive politically charged dogma”. I understand your position. I constantly try to keep the TODsters straight. But for goodness sake...I’m only one geologist.

As I’ve often mentioned I was first tutored about PO over 35 years ago. Additionally for the last 36 years I’ve been tasked with the increasingly difficult job of replacing depleting reserves. Other than seeing a few interesting charts here, all in all, there’s not much revelation potential on TOD for me regarding the factual side of PO.

But I find TOD valuable for exactly the reason it seems to disappoint you. We’re not going to deal effectively with PO in a vacuum. It will have to be done with all the charged dogma, social leaning, political bias and, above all, ignorance that exists in our world. Considering TOD is probably one of the most knowledgeable PO collectives around look at the diverse positions found here. If we can’t effectively form constructive thoughts amongst ourselves what can we expect to accomplish with the great unwashed masses? Whether I agree with an opinion/position expressed on TOD or not I find it valuable to hear all here. I live/work in a world where there is little discussion of PO. There’s no point: most of the oil patch understand it all too well despite what you hear on those sugary Chevron PSA’s or press releases from the CEO’s. The chats on TOD I find most interesting are with folks I don’t see eye to eye.

Hi Rockman,

You are another person whose comments I enjoy (along with ofm). In most cases I agree completely with your positions and your comments give us great insight into the oil patch. I also agree with doc's comment about the politically charged dogma coming from the left, but maybe the reason I enjoy your perspective and ofm's is that you seem to balance that to some degree. I agree completly with your comment that what makes TOD interesting are the different perspectives so that we don't just have an echo chamber. What do you think about the idea of a carbon tax on oil, coal, and natural gas?


DC - I'm not opposed to any theory. I've paid tens of $millions in just production taxes to Texas and La. Hasn’t slowed me up at all. I've never been opposed to fuel taxes as a way to fund road maintenance AND encourage conservation. But the key to any new taxes is the unintended consequences. We all know we should have increased fuel taxes long ago. We could have done so slowly enough to not have a negative impact on the economy. Of course, we could throw an extra $2/gallon tax on tomorrow. That would produce tremendous conservation overnight. But could the economy deal with such a move without very painful negative impacts?

That's essentially my position on carbon taxes, etc. Something needs to be done but in such a way that it doesn't eventually do more harm than good. And that approach would have to be designed by someone a lot more clever than me. And I think most would agree that our biggest problem is time. There's very little time left to take baby steps IMHO. OTOH radical changes at this point could be devastating. And just as devastating as making no changes.

Frustrating, eh?


Thanks for the reply. My push for a carbon tax of some sort is that it has fewer unintended consequences than mandates or rationing. It allows consumers and businesses to make what they believe are the best choices, winners are not chosen by the government, but by Mr. Market (who is not perfect, but better than any alternative I am aware of). We need to weigh the possible bad consequences of the tax vs. the bad consequences of inaction.

How does the equivalent (this will be different for oil, coal, and natural gas) of a 50 cent per gallon tax on gas the first year and then it doubles each year thereafter so that in year 3 we are up to a $2/ gallon tax, after that we could continue to raise the tax by $1 per year. This tax could be called a "fee" to get around the "no new taxes" pledge and could be refunded to all families. Take the total carbon fees collected and divide by total households and send these "dividend" checks back to each household. Those that choose to use less carbon intensive energy sources will come out ahead. It would increase demand for lower carbon energy and energy efficient cars, buildings, and appliances while reducing demand for fossil fuels. This is not an original idea, it is the "fee and dividend" plan that avoids sending excess profits to the financial industry that a cap and trade plan would. Also the caps, in a cap and trade plan are set arbitrarily so they amount to a plan that is more like rationing which is less efficient.

As Ron pointed out upthread, and I agree, this has little chance of becoming law. I only bring it up because if we can get people with different view points to come up with something that addresses the problem of peak fossil fuels and also helps reduce carbon emissions, maybe we could get others behind it.


DC - The problem I see with any program is if it doesn't cause significant economic distress then there won't be enough incentive to cut consumption. But too much distress and the economy goes into the toilet again. In your plan households would see a huge increase in transportation costs that, although eventually rebated, puts them in a hole till then. Multiply that by many tens of millions of families and it could sink the economy to levels yet seen.

Back to the problem: where is the balance? And who do you trust to get it right?

I suspect trying to strike the balance always dilutes the measure. Especially when one is trying to shoehorn sustainable into the growth paradigm. It just doesn't make sense on a lot of levels.

This reality also inhibits expression where one tempers ones opinions in public over what needs to be done as anything too outside the box is seen as mad/waco...just too "out there" to be practical. Even at a forum of free thinkers[?] self censorship of expression comes into play where perceptions generated by peer pressure selection creates a confined space for ideas. There is little point suggesting certain measures because there is the fear one will not be taken seriously.

Yet if the only permissible actions are small ineffective measures then a contradiction will arise where the only possible suggested solutions are already perceived as useless and in-time will precipitate some sort of major "event" anyway.

If one thinks that likely then its hard to see any other option except shift to the more big /radial end of the spectrum. If that isn't the case and these small steps can work in essence there isn't really that much of a problem.

The question comes down to this. Does one believe is it going to be BAU or not?

It's not hard to do. Just start the rebates in parallel with the taxes.

The hard thing to find is the will to do it, and override the objections from the Koch brothers and their Fox friends.


A simple adjustment to putting people in a hole due to fuel taxes would be either to reduce federal withholding of taxes equal to the estimated annual revenue from the proposed fuel tax or to pay the rebates upfront as the plan is instituted. Note that the plan only causes distress to those that use a lot of fossil fuels, those that change their preferences and get smaller vehicles, drive less, buy more enegy efficient homes and so forth suffer less than those who do not. In addition utilities that invest in low carbon electricity supply (wind, solar, nuclear, and geothermal) will be able to sell cheaper electricity at a greater profit.

It may come down to a philosophical difference that any attempt to make things better, only makes things worse. It seems however that you have commented elsewhere (on shale gas I think) that the Texas environmental regulations on disposal of frac fluids and so forth are a good thing. Now someone had to be trusted to get that right. Same idea here, the plan may not be perfect and some balance needs to be sought between doing enough to have an impact without sending the economy down the toilet.

I am guessing that the market by itself is not going to lead to the economy adjusting quickly enough so that we will face a liquids fuel crisis in the next 5 to 10 years. At that point prices will rise to the point where we will "see a huge increase in transportation costs" and we will start to see some changes in behavior. The tax idea is to try to nudge consumer behavior in a direction that makes this inevitable adjustment less difficult and the ensuing collapse, less severe. Is inaction always the better course? Every social change carries the risk of making things worse, the risk of not changing is that any potential benefits of a proposed policy are forfeited. It all comes down to cost/ benefit which is something I am sure you deal with all the time.


I totally agree.

But in so doing we have both created strawman arguments [unintentionally].

Isn't my point exactly the reason you come here?

Isolated PO as a problem is not that difficult to deal with. One can sketch out a pretty plausible response on a sheet of A4, but as you say it doesn't exist in a vacuum. The real problem lies with in this contextual domain which this site is part of. Its all politics.

The main issue is the intransigence of people willing to change there world view vis a vis the economy and how that supposedly functions. Something I would maintain is poorly understood yet voices of all different varieties take up exceeding firm positions which in one way or other use price signals.

my first thought on this is if we need to wait for a price signal to solve this issue the market or mandated market nudge[pick your bias] must be close to the dumbest decision making mechanism ever invented..... amirite!

The fact we are discussing Peak Oil is a reflection of society's failure to accept the finiteness of the Earth's resources.

"Exhibt A M'ludd"

The horror is of course we are stuck with it... until we're not...

the sublime ease unelected technocrats were slid into power in Greece and Italy is astonishing. It just sort of happened. And nobody has said a thing. Reality will dictate a new economy and the government that goes with it and it will be a cmd economy with an authoritarian bent. Prices will continue to lose meaning as far as a reflection of endowment of finite resources...if they ever did? A concatenation of confusing events that necessitate simplification by central gov, if we are lucky!

Yet this inevitability is compartmentalized and broken off from the debate. Its as thou we will only argue for measures that operate inside a system we already know is doomed? "its too late to change now because it will do more harm than good". Which is another way of saying its too late. How weird is that? Its a similar contradiction to the one Bmiller pointed out

So people are left with an implicit contradiction: declining oil production is a disaster for the economy but the world knew a long time ago it was inevitable and irrevocable.

The conclusion is that a bunch of very smart people[way smarter than me] handling large investment funds are in retrospect idiots. How can they not have known? Its disturbing.... because they almost certainly did and carried on anyway. Just as a lot of posters here know their suggestions are unlikely to come to pass but keep arguing within the confines of the present paradigm as thou that is all there ever can be. It is this contradiction that interest me most presently. All that stuff Nate went on about back in the day .

And here is the thing. We are going to change direction. So why do we keep presenting solutions and insights as thou that isn't going to happen.... on a web forum specializing in fossil fuel depletion FFS!

This is a comment I made earlier about Peak Oil: The problem with the term "Peak Oil" is it's logically equal to "the horse has left the barn." In other words, the true, real turning point passed a long time ago. So people are left with an implicit contradiction: declining oil production is a disaster for the economy but the world knew a long time ago it was inevitable and irrevocable.

The fact we are discussing Peak Oil is a reflection of society's failure to accept the finiteness of the Earth's resources. So, there has been for decades a political message or movement dealing not only with the depletion of Oil resources but all of the Earth's valuable resources and it was and is called: Conservation. Needless to say, Conservation is not a politically popular message and that's why we're here today.

The fact we are discussing Peak Oil is a reflection of society's failure to accept the finiteness of the Earth's resources.

We have a winner

Just wanted to make sure you weren't confused.

If there is anything I can be truly sure of its the realisation of how confused my understanding really is ;-}

Good Luck.

I agree, and some people are probably "peak oil aware" without knowing that they are so. Like the analyst on CNBC yesterday who said "the West is finished financially". It is over in the eyes of the market strategists because no futher debt can be generated to pay for growth. So many people are saying variations of the same thing, whenever they talk about the collapse of the eurozone that leads to chaos all over the world, perhaps triggering a sovereign debt crisis in Japan next.

Everyone says it in their own way but at the root it's an energy crisis with a serious bite, a gaping maw being masked by all the veils a society can draw over it...

Yet secretly would we want the world's economy to continue to "grow"? We all knew endless growth was impossible anyway. It is comforting, somehow, to have the limits made clear. I think even people at the top feel that way.

Was it Heinburg or another PO advocate who said a decade ago that PO would never be recognised for what it is, because the collapse of society will be blamed on the failed economic system or bad debt or something - anything - else?

A corollary observation would be that the collapse of society will be blamed on something else, anything else, because it was something else, or anything else.