A new thread for the weekend

In the midst of the warmer weather . . . .
How much of US/World oil use is for military? We keep hashing out bpd supply to fine points over the next 5-10 years under various scenarios but recently I have been wondering how much 'fixed' oil use is in the system? We will use an increasing amount of the 84mbpd to create/refine the energy (declining EROEI), after that there is military use which certainly will not decrease, after that there is the transportation that represents the globalized economic regime, after that there is food, and then there is luxury/consumer choice/retail/vacation/frivolity etc. I am curious at what minimimum threshold of bpd we would currently need before the system would break down?

The hubbertian charts show that in 2025 we'll be back to the same production as 1985, which we all remember as not being too bad - but there were less people, less wants, and less globalization then. My instinct tells me that even 2-3 million bpd offline (Iran?, Venezuela? Mexico?) causes serious disruptions. My question gets at defining serious as 'economic' e.g. just higher oil prices, or 'structural' e.g. below the minimum needed to fuel the engine as we know it...

Darn data is hard to come by - I assume that on the EIA site, the US military consumption is 'hidden' under the 'industrial' heading but Im not certain. thoughts?

Search old TOD posts. This was fairly well covered a few months ago. I think the TOD Editor was the now translated Ianqui.
OK thanks - lots of info on this site. I guess my main question gets at if we could label all oil use as 'necessary, important, or marginal' how much would fall in the 'necessary' camp. Ill look into some old posts.
This is a misleading thing to look at. Let's take one extreme example, the people making a living selling gasoline at the boat docks at Lake Powell's remote Dangling Rope Marina.

To anyone who doesn't visit there it's pretty "non-essential."

To them it's their livelihood. If they didn't work there, they would need to work somewhere else, or else starve.

Pretty much every use of hydrocarbon fuels is "essential" to someone. It's all shades of grey. When does gray become black? When does grey become white? It's irrelevant.

What we must ask is the rate of onset of the shortage. If it is too abrupt then the economy will have trouble readjusting. If it is gradual, then there may be less pain adjusting.

Here's the post you want, Sasquatch.
"...I am curious at what minimimum threshold of bpd we would currently need before the system would break down?"

If we are within 20 years of PO (how many of us here at TOD really doubt that?) without any measurable action on mitigation a la Hirsch, et al, then the system already is broken down, but the spaghetti just hasn't hit the fan yet.  

Too many variables, LOL. But...

Military spend is less than but close to 5% of global GDP,  marginally higher than 5% US GDP, don't have up to date numbers and it is hard to come by realistic recent ones. US military spend is close to all other countries' military spend added together and has been increasing (in proportion) over the last 5 years.

Global population (current trends, excluding catastrophic adjustments) will be near double 1985 level in 2025, at between 7.5 and 8 billion. Peak oil production per capita was already passed before 1985 (1979 if I remember right).

There is insufficient slack in the current situation to accomodate a 2 to 3 mbpd disruption in supply (without causing a shortfall), present margin seems to be 1 mbpd at most.

Barring major exogenous events affecting supply or demand we will likely reach a supply shortfall within 3 to 6 years. At that point, or should a significant supply disruption occur prior to then, the price of oil will reach a minimum of $100 bbl, quite likely $200 to $500, possibly $1000 or more, dependent on shortfall, associated events, duration.

The economic system will break if those 'quite likely' levels are sustained for any lengthy time. The minimum result will be 1930s in spades, near globally, but could be significantly worse.

How far can we cope relatively comfortably with an extended supply shortfall? Price will be the initial killer, it ends economic growth in the short to medium term. If the shortfall is perceived as permanent then there is virtually no limit to the price of oil. If consequent disruption interrupts electricity supplies for more than a few days then the scenario changes and substantial die-off may occur.

If the transition is more managed, government more in control, population more educated, aware and prepared, then a greater supply shortfall could be absorbed, perhaps 10% to 20% within a year. Under current circumstances I would say a rapid (within a year) supply shortfall of 10% would break the US economic system. I don't know the consequences of that, it hasn't happened before, but a 10% population reduction is plausible before / if stability is briefly resumed.

Your quoted 2 to 3 mbpd shortfall is approx 3%, I would say that is probably manageable but would cause a doubling of oil price and serious US and global economic depression. I don't believe a sudden shortfall of 10% or more for more than 3 months is manageable (without major advance preparation), and I expect such an event within 5 years, probably within 3 years.

One thing I must point out: we often talk about peak oil as if it is a steady and gentle process. It almost certainly won't be. Governments ARE aware of it coming, it can be seen in the ways they are playing their hands already, though mostly they don't really appreciate its implications. It is their misplaying (prior to or about the time of PO) that will cause the greatest problems. That is why one of our most important duties is to inform others - so they can be aware of the context within which their government is acting and exercise control and knowledgeable discussion wherever possible when the time comes.

This article on biodiesel provides a few numbers on military fuel use:


For example, "All told, the military will use more than 6 million gallons of biodiesel this year, according to the Defense Energy Support Center, the government agency that supplies the military with fuel. That's still a drop in the bucket compared to the military's overall fuel needs, however. The Navy and Marine Corps burn through nearly 2 billion gallons of diesel a year, says Grassilli."


I found that old TOD discussion here.

Basically it said the military use is 350,000 bpd but that DOD/DOE have overlap and there is alot of uncertainty surounding domestic/international use,etc.

The thrust of my question is more to perform a bottoms up analysis of the 84 mpbd of usage to see how much is really needed to make the current capitalist system run. If for example Venezuala decided to pal up with China and we lost that production and a few others, how much would we need to replace to keep things running at any price?

Basically, what is the US/Worlds fixed vs marginal oil usage?

I think it's pretty hard to predict what will happen if there's actual scarcity.  Once it's clear that there's an actual shortage, or that the price is only going to get higher, individuals, corporations and governments will start hoarding.  The military certainly will not risk being cut off; they will take more than they need, just to be safe.  

I don't know if the gas stations will go dry overnight as some predict, but it's a possibility.  Remember the chaos after Katrina, where people were filling up coffee cups with gasoline.  If everyone panics and fills up at once, the system gets sucked dry in days, if not hours.

Do we have a number for the global production of biofuels expressed in barrels per day? I have seen regional numbers in gallons, in litres or in tons, but no one has estimation in barrels per day.

If, for example, the global production (and consumption) of biofuels were 500K of barrels of gasoline equivalent per day, that would be a significant development, don’t you think? It would mean that fossil fuels substitution has already begun, but we haven’t noticed it yet.

Unfortunately, I can’t find the numbers, I can’t do the estimations myself and I am pissed.

'that would be a significant development, don't you think? It would mean that fossil fuels substitution has already begun, but we haven't noticed it yet.'

In other words, it would mean that using net primary productivity of the planet, which is used for other purposes (water cycle, nutrients in soil, biodiversity, carbon sequestration, etc) to replace fossil fuels is already begun. Yes it has.

here is a link already posted on TOD to a Monbiot article on the ecological devastation of large scale biofuels.

I believe ethanol production last year was about 11 million gallons. But again, this doesnt mean we're 'replacing' fossil fuels, just combining fossil fuels, sunlight, fertilizer, labor, steam, electricity and marketing into a blender and creating ethanol. We are creating energy, but marginally more than we put in.

I think you meant to say 11 billion gallons instead of 11 million gallons as the 2005 estimated global production of ethanol.  

It sounds like a lot, but 11 billion gallons a year works out to be approximately 0.66 million bbl per day, which is  equivalent to only about 0.8% of the yearly oil production of roughly 84 million bbl per day (and that's without even taking into account the fact that ethanol has a somewhat lower heat content than most refined petroleum products).

But it really much worse than that. Don't forget that even if we use the USDA's probably optimistic EROEI for ethanol-from-corn of 1.34, then that 0.66 million bbl per day of ethanol production is really only replacing about 0.23 million bbl per day of fossil fuel, equivalent to only 0.27% of global oil production.

While ethanol has made a start, I think these numbers illustrate how far we would have to go to make a signficant dent in global energy consumption by increasing the ethanol-from-corn option. I really don't see this as doing anything but nibbling around the margins of the overall energy problem. And that's without even addressing the issues of competition with food crops, strain on water resources, and soil depletion.

Yes thanks for the correction - 11 billion gallons.

Another way to look at it is this:

Assuming 84mm bpd of oil and 660kbd of ethanol, we need (using aggressive USDA assumptions) 492,000 barrels of oil each day to create 660,000 barrels of ethanol. (660/1.34). We've 'created' 168,000 barrels per day.

The ethanol numbers show up in the 84 mbpd figures so the alternate equations are:

a) no ethanol => meaning we have 83,834,000 bpd of oil


b)create ethanol => 660,000 bpd ethanol, which becomes part of 84,000,000 bpd oil equivalents + ecological externalities and some loss of food.

In this way, it can be seen that alternative energies, in an EROI circular fashion are adding to our energy supply by grossing up both sides of the energy balance sheet and adding other issues to the system that are not easily compared as apples to apples.

I suppose ethanol from sugar cane has much better EROEI otherwise it would have been a financial loser for Brazil for example. I also suspect that a great deal from the energy inputs ultimately comes from coal which is still quite abundant. If this is the case, one could argue that CTL would be a much more effective choice, which at least does not put a pressure on the food production.
This is almost evil but a lot of rural europe would welcome pressure on the food production. Selling biomass for fuel production gives a better farmer life then living on subsidies. But this only works out well for the farmers if EROEI is high enough.
CTL takes carbon from the ground and puts it into the atmosphere, exacerbating GW. One day even coal will run out. In an all-biofuels economy the carbon would be recycled indefinitely. Preferably the plant material would be leftovers from food production. Conservative estimates say to get both food and fuel we need at least 20 acres or 8 hectares of productive land per person. In the absence of new clean energy sources this probably requires a 50% reduction in the population.
If I can recall correctly over the half of the energy needed to produce ethanol goes into the destillation process which by itself uses electricity. If the additional electricity comes from coal (the obviuos choice if you don't want nuclear) then with a 40% efficient power plant and EROEI of 1.34 we are going to need 0.5/0.4 = 1.25 Btu of coal energy to produce 1.34 Btu of ethanol energy; That is coal to ethanol EROEI is less than 1.1
On the other hand a Fischer-Trops conversion has an efficiency in the range of 70% so the coal to diesel EROEI is 0.7 which is not that far - again for ethanol I omitted the other energy inputs for fertilizers etc.

The CO2 arithmetics is even worse for ethanol because the ethanol itself is releasing CO2 in the atmosphere. If instead we yielded the farmland to forests the net result would be a reduction of C02 so I can not not agree that ethanol is costless on this point - there is an alternative cost here. My fear is that if we allow this idea to go to a really large scale, there may come a day when we will have all our forests replaced by energy crops just like it seems to be already happening in Brazil. No need to comment on the CO2 emissions effects from that prospect.

I have no idea what the four branches of the military use. But consider this: There are still hundreds of bases, large and small, both in the CONUS and overseas. Don't even think Iraq at the moment. Even at the average company-sized (as opposed to brigade or battalion or some other unit level) Army National Guard armory there are dozens of vehicles, most if not all could charitably be described as hoggish on fuel.
Then consider jet fuel (JP-4 principally). There are 11 active (I think) Navy aircraft carriers presently afloat. Each carries 70 some aircraft. The average Air Force/Air National Guard/Air Force Reserve fighter wing has 18 or more aircraft. The average bombardment wing (B-1B, B-52H, B-2) has dozens of multi-engine aircraft. Don't forget the military airlift wings (C-130s, C-5B, C-17). And the tankers (KC-10 and KC-135).
Put this all together and you have an aircraft fleet far beyond the dreams of even the biggest (bankrupt) civilian airline.
The waste is prodigous. I remember sitting inside a KC-135 on the taxiway at a now closed Strategic Air Command base in the late 80's and waiting waiting waiting for the aircraft to take off. There was an Air Traffic Control hold. We sat there, with engines running, for more than one hour. As I said the waste is prodigous, probably beyond the ability of even the most astute accountant familiar with the system to calculate.
Hello all,

First post. I've been convorting with my other lemmings over at http://www.peakoildebunked.com

I felt it's time for me to enlighten you all with my insights here. I've come to show you the silliness of your ways and to teach you about the Great mMarket, who provides for our everlasting needs so long as you have faith int rational utility, supply, and demand.


Welcome, and thanks for your insights in advance. Rational utility equates to brain chemicals that met with evolutionary success in my opinion. No neo-classical argument will convince me otherwise.
Going to be a tough task.
We bunk and debunk Peak Oil here already.
Chances are we have already heard it.
When you say the "Great Market", you mean        speculation, this has already caused a serious blunder that goes by the name Calpine.
20 billion down the drain.
Just relax. The Great Market will provide. It always has, it always will.


Sorry to break it to ya, but the "market" is controlled by the government.  He who gets the most tax breaks and subsidies wins.  And the fossil fuel business is winning.  Nothing like putting all your eggs in one industry.
Maybe next time we can go to war for windmills and the latest in wave energy technology....Spain and Portugal are next!
He's already on your side. The "Lemming" post appears to be typical of fraud posting that pretends to state the opposition viewpoint but do in in a way that makes it look wrong. It has cheapened the dialogue at many sites (ie. Washington Monthly). Let's hope it doesn't here. There are plenty of people submitting good opinions on all sides of the arguement. Let keep the discussion legitimate.
I have no idea what you just wrote, but anyhow,  this is just a "discussion".  I have libertarian views, I want free markets or something close to it; our current system in nowhere near.
The markets will fail because there is too much control over the system.
There is no competition anymore, subsidies and tax breaks create a very uneven playing field and as they are set up now, lobbyists (corpo money)seem to have more
control over the markets than any other force.
This is dangerous.
It seems the Lemming likes the current system and is probably making some serious money off of it at tax payers expense.
I am not a fan of the current "markets".
Appears to be a "legitimate discussion"....no?
It could all be snark, but I doubt someone would get snarky their first post.
I think it is snark, as you call it. Read this:

"I felt it's time for me to enlighten you all with my insights here. I've come to show you the silliness of your ways and to teach you about the Great mMarket, who provides for our everlasting needs so long as you have faith int rational utility, supply, and demand."

I don't think the Lemming likes the current system, or is engaging in legitimate discussion. My impression is this is a fake post intended to make the pro-market argument look foolish.

If it is indeed snark or sarcasm, I think it should be labeled as such - particularly in a first post. If I am wrong I apologize.

By the way I agree with a lot of the views you stated and do regard all of these topics as good ones to discuss. I just think that we should be honest in how we represent our positions. As I noted above, other comments sections in some other blogs are virtually ruined because a lot of the posters pretend to represent a position they oppose, but do it in a way that makes it look foolish. The quote above seems like a good example of this.

I should not have said "on your side", since I didn't know what side you are on or even if you are on one.

There are certain areas in which free markets work well and with great efficiencies and others where the free market system is a total failure.

  1. An example of success: the computer industry
  2. First example of failure: ocean fishing where the tragedy of the commons has wiped out many a species. Before you get glad on this being an "exception", remember that the air we breath is our commons and all industrialization is polluting it while claiming to be providing "growth" and "progress". Run-away global warming is not exactly something the free markets should be crowing about as a success story. It may be the end of our species.
  3. Medicine. It is impossible to "negotiate" the cost of your own life and those of loved ones. Health care is an area that does not fit into the supply /demand theory of free markets.
An example of success: the computer industry

Not so fast. Yes, the computer industry has produced a great deal of value; but it could have produced much more at much lower cost under a free software model, ideally with a small tax on every computer (smaller than the "Microsoft tax" [monopoly rent] that most everyone has been paying all along) used to reward developers and especially innovators.

As a sidebar, IBM's decision to base PCs on the Intel 8086 chip was a tragic blunder, when the 68000 with its flat 32-bit address space was already available. An enormous number of programmer-hours has been wasted catering for the various ugly Intel architectures (and Intel has had to waste chip space staying compatible with their previous bits of ugliness).

And don't even get me started on software patents.

And don't even get me started on software patents.

Aha. A card-carrying member of the League for Programming Freedom (LPF).

(I understand where you people are coming from, but I work for the other side.)

Anyway, software patents are way off topic here.

You don't have to be an LPF member to dislike software patents. You just have to be a programmer.

The industry did fine without software patents for quite a few decades. It was productive, profitable, and innovative. Fortunately, we had time to invent quite a lot before software was declared patentable--though quite a few patents were granted and enforced for stuff that was already in the public domain.

Relevance to Peak Oil? Patents can be used to stifle innovation in alternative energy. Already have been. Probably will be, right up to the point that oil companies go bankrupt. Oh wait, oil companies won't go bankrupt until long after peak oil--they'll just charge more for less. Oops.

I'm not anti-patent. I am anti-software-patent. And I am to a large extent anti-patent-system. If patents were really about encouraging innovation, it wouldn't cost a million dollars to fight a bad patent or defend a good one.


Relevance to Peak Oil? Patents can be used to stifle innovation in alternative energy.

I strongly disagree. I just got a patent awarded to me a few months back involving alternative energy.

Without the patent I would have zero. Less than zero.

Even with a patent, the world does NOT beat a path to your door step (the old mousetrap BS). Instead, it is a hard uphill battle even with a patent in hand. You got to prove to those who got the money that they will make tons more money if they back you up. But first you got to make them even listen to you. That alone is far from easy. If we did not have a patent system, small time inventors would be screwed.

BTW, forces are now at work in Washington D.C. trying to do exactly that, screw the small time inventors by "Deforming" the US Patent system. They call it "reform". You know you can always trust those "They" people. They never lie to you.

Getting back to Peak Oil and Software Patents,
Suppose I had invented a clever software algorithm for controlling a car's engine so that it burns much less gasoline per mile.

Under your definition I am not entitled to a patent?

The practical problem with software patents is that scores of very simple things have been patented and are being patented in the US.  This minefield of trivial patents makes it impossible for small time inventors to write a program that does not happen to use some trivial method or obvious idea that is patented. Getting a handle on those patents and working around them would be an immense task.

And there are lots of people who are perfectly happy with sharing their work withouth the patent system protection so software innovation will not stop with no patent system or no trivial patents. But they do benefit from copyright, copyright gives people a way to negotiate the rules in the sharing. And copyright have a low costs for legal overhead, manny programmers has no chance of financing large legal costs.

Your patent system has partly been overused into uselessness. Some kind of reform is probably needed, otherwise it will crash due to massive disobediance and legal preying on companies who make money while using software. This would also screw you as an inventor who can use patents as a tool to secure investments.

The peak oil lesson is that it is very bad to let legal systems become inefficient and misused. It is a waste that will not be affordable in depression times since it is in the way of new economic progress adapted to the new physical realities.

As I said, I'm not against all patents.

Not being a patent lawyer, I can't tell you for sure whether you would have gotten a patent on your engine-control software algorithm prior to the imposition of software patents. My impression is that you could still have gotten a patent on the physical component--the engine using the algorithm.

Remember that absence of software patents is not my "definition." It's the way things were until a few years ago. The old maxim "If it ain't broke, don't fix it" should have been applied in this case.

I have heard it said by people who study patents that unless you think you can make a million bucks on your idea, don't bother getting a patent--it will cost you more than it will save. This tells me that the system is very much broken and does not help small inventors. How to fix it is not an easy question to answer, but that it is broken is obvious. That bad patents are granted is a fact. That "category killer" patents are granted is a fact. That patents can be used to hurt innovation is a fact.

A few years ago, I happened to meet someone who had worked on an innovative alternative-energy plant, I think in the Northwest US. They got it built, at the cost of millions of dollars. They were about to start operation, and then an oil company (I forget which one) said, "We have a patent on this. You have to sell it to us for pennies on the dollar, or take a total loss, because we'll never let you run it." The oil company didn't run it either. Unfortunately, I don't remember any more details, but the person I spoke with had actually worked there--it's not a friend-of-a-friend story.

And again, I am not against all patents, so stop your knee from jerking.


my nano-positioned knee stands still and stable, thanks. :-)
The Market will provide. Always has, always will.


I sense a disciple out there, ... spreading the viral message.

Keep clawing away brother.

The Wealth of Tunnel Visions will soon reveal itself onto us
as foretold by our prophet, Adlemm Smith.

The Rapture of the Invisible Hand is at hand.

Burrow like there's no tomorrow.
Our prosperity is inevitable,
....and non-negotiable.

Hey TML:  I've  been checking in on the POD each day for a few laughs. For a little relaxation it's much better than the comedy channel.  Facts are few and far between. BTW Boeing is doing so well because of the A380.  Airbus is going in the tank in a few years. The little Brazilian jets will soon only be flying the old SST folks around the world. More later, I've a pain in my side.  Also do you know how much oil Halliburton produces and what their reserves are.
Halliburton is actually a service provider to the industry, rather than one of the companies that produces and markets the oil.  It does a lot of the hydrofracking of wells and things of that nature to improve oilfield production.
Thank you HO: I did work in the oil service industry for 40 years, How ever no one ever seems to state Halliburton's primary roll of oil field services and construction. BTW I was never an orange man.
This guy is a merry prankster...he is using irony. Relax TOD contributors.
Another take on Iran, from atrios.blogspot.com:

 How It Goes

Winter/Spring - The clone army of foreign policy "experts" from conservative foreign policy outfits nobody ever heard of before suddenly appear on all the cable news programs all the time, frowning furiously and expressing concerns about the "grave threat" that Iran poses. Never before heard of Iranian exile group members start appearing regularly, talking about their role in the nuclear program and talking up Iran's human rights violations.

Spring/Summer - "Liberal hawks" point out that all serious people understand the serious threat posed by serious Iran, and while they acknowledge grudgingly that the Bush administration has fucked up everything it touches, they stress, and I mean stress, that we really must support the Bush administration's serious efforts to deal with the serious problem and that criticisms of such serious approaches to a serious problem are highly irresponsible and come only from irrational very unserious Bush haters who would rather live in Iran than the U.S.

Late Summer - Rumsfeld denies having an Iran war plan "on his desk." He refuses to answer if he has one "in his file cabinet." Andy Card explains that you don't roll out new product until after labor day.

Early Fall - Bush suddenly demands Congress give him the authority to attack Iran to ensure they "disarm." Some Democrats have the temerity to ask "with what army?" Marshall Wittman and Peter Beinart explain that courageous Democrats will have the courageous courage to be serious and to confront the "grave threat" with seriousness and vote to send other peoples' kids off to war, otherwise they'll be seen as highly unserious on national security. Neither enlists.

Late October - Despite the fact that all but 30 Democrats vote for the resolution, Republicans run a national ad campaign telling voters that Democrats are objectively pro-Ahmadinejad. Glenn Reynolds muses, sadly, that Democrats aren't just anti-war, but "on the other side." Nick Kristof writes that liberals must support the war due to Ahmadinejad's opposition to gay rights in Iran.

Election Day - Democrats lose 5 seats in the Senate, 30 in the House. Marshall Wittman blames it on the "pro-Iranian caucus."

The Day After Election Day - Miraculously we never hear another word about the grave Iranian threat. Peter Beinart writes a book about how serious Democrats must support the liberation of Venezuela and Bolivia.

Collapse Is Inevitable

It's an article based on the work of Tainter and Greer, and includes a map of the world showing areas that have already collapsed, but are "propped up now only by the peer polity system they are enmeshed in."


Did you notice that anthropik has NOLA in the red zone?

I don't understand why he also picks N Dakota. Is that N. Dakota?

Not sure, but I think it's Montana.  As Jared Diamond lays out in Collapse, Montana has gone from being one of the wealthiest states, due its rich natural resources, to being one of the poorest - due to over-exploitation.  The forests have been clear-cut, and what's remaining is poorly managed and therefore prone to devastating fires.  Mining has poisoned the land.  Arsenic and other heavy metals leaching from mines will poison the lakes and streams for 100,000 years.  90% of the fish in the rivers and lakes are dead.  Once fertile farmland has a crust of salt over it.  Some wells that used to produce fresh water now produce water seven times saltier than seawater.  There's not enough water to support farming any more, and farms and ranches are being replaced by vacation homes for rich people.  Montana used to export food, timber, and metal ore; now they are net importers of all three.  Diamond argues that Montana has already collapsed; I believe that's why it's included on the map.
Just to say thanks for linking the TOD community to a fascinating article. A reference like this is worth a thousand redundant comments!
I just saw an hour long program on the discovery channel that delt with rubber.  The complexity of producing a tire is awesome.

Anybody care to estimate the amount of oil that goes into tire production in a year?

How much is TOD worth?
Any guesses?

Well, SS and HO can't retire just yet, but it's getting up there.

Your blog, theoildrum.com/, is worth $135,489.60

Apparently this one which I just used to validate the number. But I did not stick around to find out how it is generated.  Guess I'll stick with my day job.
It's generated by extrapolating a value/inbound link from a single deal - the AOL acquisition of Weblogs, inc (with rumored valuation, not publicly announced one). So it's probably not too solid a valuation method. However, this valuation method seems likely to improve over time.
Don't tell us you're going to sell!!!!

At least not yet?

1 barrel of WTI crude: US $ 64.58
solar panels for your home: US $ 6000.-
The Oil Drum( acommunity discussion abougt Peak Oil): PRICELESS!!
This was more appropriate for the previous thread but that one got pretty full. Does this plot of M3 and the current account deficit that I assembled (from Bud Conrad and the St Louis Fed) look stable? Some of the numbers may be off by a few percent but I am concerned about the overall trend.
Taking advantantage of the lull, I thought I would point out several unexpected (to me) features of the data. M3 grew almost as fast in the 1970's and early 1980's (Carter and Reagan first term) as it is growing now; but the current account deficit hadn't yet started to bulge. The bulge temporarily flattened during Bush1 and Clinton first term.  Whatever changed to make M3 shoot linearly up in 1996 happened halfway through Clinton.  There was relatively little effect of the Clinton-to-Bush2 transition and 9-11.
Yes, the M3 inflation of the late 70's and early 80's was to try to drag the US out of a depression mostly due to the oil shocks of the time. Now, however, is different: we are not yet in the recession of these oil shocks and money supply has mostly been going bonkers at an ever increasing rate for years - it funded the stock bubble of the late 90's, the property bubble of the early 2000's and the commodity bubble still inflating.

In the 1970's it resulted in 'stagflation', there is some debate about where it will lead soon (deflationists, hyperinflationists, hyperstagflationists) but no one really knows, the imbalances we have now are far more extreme than existed before.

"Half a pound of tuppenny rice, half a pound of treacle... "

In my opinion, what is going on, is a function of double entry bookkeeping and the definition of the current account balance of trade.

CAB = X-M = Net Financial Flows  +  Net Direct Investments + Net Errors & Omissions

where X= Exports
      M= Imports
      Financial flows = purchase by Americans of foreign stocks or bonds - Purchases of American stocks or bonds by Foreigners
      Net Direct Investments = Purchase of foreign hard assets (whole companies and real estate) by Americans less purchase of American hard assets by foreigners.

OK, got that? Here is the deal. If we have a negative current account balance, that means foreigners are not using receipts from exports sales to us, to buy imports from us. Since we pay in dollars, and our dollars are  not good in their countries, they must buy something denominated in dollars, usually financial instruments. The rising curve of M3 troubles some people because they suspect much of this money is going into the Eurodollar deposit component of M3 (Eurodollars are dollars held on deposit in banks outside the US). See definitions of M2 and M3 below.

I assume that the slope of the M3 curve, or at least the Eurodollar component of it, rose during the late years of the Clinton Administration for two reasons. (1) Oil hit is 25 year low in 1998; our oil import bill had nowhere to go but up from there (2) As Asia began recovering from the 1998 financial crisis, American companies began to set up production facilities on the Asian mainland at an accelerated pace. (3) Bush has accelerated the dollar outflow as we spend lots of dollars in Iraq. As some of these dollars get spent there and end up in banks (Iraqi or in other foreign countries) that increases the number of Eurodollars.

Is this situation unstable as you suggest? Of course it is. At some point it will no longer behoove other countries to accept dollars that are being printed without limit. I just don't feel like spinning out doomsday scenaries today (we did that last week on TOD) but suffice it to say, that I, who long disdained "gold bugs" as cranks, have for the first time bought gold for the long term rather than as a in-and-out trade.

Marty just so the other readers are on the same page,. here is the definition of M3, from the online Investor Dictionary site:


 A measure of money that equals M2, plus less liquid assets which include large-denomination time deposits, institutional money market mutual fund shares, term repurchase agreements, and term Eurodollars.


 A measure of money that that consists of M1, plus other assets that have check writing features and assets that are very liquid. These would include, money market deposit accounts, money market mutual fund shares, small-denomination time deposits, saving deposits, overnight repurchase agreements, and overnight Eurodollars.


 A measure of the money supply reported by the Federal Reserve System that includes currency, traveler's checks, and checkable deposits.

I am not an economist, but those trend lines scare the hell out of me!  Something important is going on: I don't know what it is, but I am convinced that it is not good.

Does anybody here think it's a coincidence that in March the Fed will start hiding the magnitude of M3?  Does this mean that the treasury printing presses are going to be cranking out dollars as fast as they can print them?

The downfall of the US may not be thru lack of oil, but rather too many faux dollars  becoming as valueless as deutschmarks in the 1920s.

Though we have undisputed military might (at least in terms of convential warfare), if the rest of the world really wanted to bring us down, they could do it simply by initiating a mass self-off of the dollar.

I'm sure this obvious fact has not gone unnoticed by  Iran and her new chum, China. They would be seriously hurt by a global recession, but they may calculate that it's worth it to bring us down.

The future wars of the 21st Century may not be military, but economic.

does anyone know who are Iran's largest oil customers
and how much goes out by tanker vs. pipelines?
Mainly Asia - Japan, China, Taiwan, Korea and some Europe.
Here is the data that OPEC put out in their 2004 annual statistics.

There were some comments here, perhaps last week, about how useless wind power would be for a grid, because it required so much spinning reserve to compensate for changes in the wind.

I have seen talk elsewhere of electric cars being plugged in to the grid to serve as energy sources on demand. I assume gas-optional hybrids could serve the same function, if they were designed to, though presumably they'd supply power at a lower rate and quantity per car.

Question is: How many cars would have to be plugged in, in order to balance the load for (say) 10% of power coming from wind? How many cars would have to be sold for that many to be plugged in? How long will it take to ramp up to that level of production and sales?

Second question: Electric cars, it was said, could supply enough capacity that the grid would pay the car owners quite well for the privilege of using their batteries. How much of this benefit would be retained for lower-capacity plug-in hybrids? Or... would it be feasible to use the hybrids as emergency generation, not just storage, potentially making them even more valuable? (Of course, this could only work if they were parked outside!)


I am not a grid expert, but:

The short-term fluctuations grow much more slowly than the total capacity for widely scattered wind power sites, so spinning reserve probably does't have to cover 100% drop out.  I don't know how fast wind speeds change, though, and I suspect it's location-dependent.

Let's consider the equivalent vehicles needed to provide 1000 MWe (a fairly large conventional power plant worth) of load following.  The batteries of a Prius store about 4.7 MJ 1000MW/45kW = 22k vehicles.  The energy in a Prius's batteries is about 4.5 MJ, so it could produce 1kW of useful output for a little over an hour.  Thus it would take 1M Priuses to supply 1000MW for 1 hour.

Total hybrid sales in the USA are currently approaching 100k vehicles per year (rising steeply).  Unfortunately, plug-in hybrids would mostly be connected at night.

Another concept (which has probably been mentioned at TOD before) is distributed supply following, grid stabilization by switching noncritical loads.  dynamicDemand has a good explanation, although as an advocacy group they are naturally optimistic.

However, I think an electric car or plug-in hybrid would be a very good candidate for supply following, adjusting its battery charging rate with power availability.  Accordingly electric vehicles could make valuable contributions to grid stability even without the ability to return power to the grid.

... 1M Priuses to supply 1000MW for 1 hour

Or [100k, 1000MW, 6 min], [100k, 100MW, 1 hr]; etc.  The listed example was just the first to come to mind.

The batteries of a Prius store about 4.7 MJ 1000MW/45kW = 22k vehicles.  The energy in a Prius's batteries is about 4.5 MJ, so it could produce 1kW of useful output for a little over an hour.

Sorry, editing error.  That section should have read:

The batteries of a Prius store about 4.7 MJ, so it could produce 1kW of useful output for a little over an hour.

And "a little over an hour" is actually 1 hour 18 minutes.

came across this in todays sunday times


NY Times Editorial Page: Oil Dependence = Instability

Clearly, becoming less dependent on foreign sources should be among the West's - and most especially America's - most urgent priorities. But not in the way that President Bush and Vice President Dick Cheney seem to prefer, which is to try to drill our way out of dependency - an utterly impossible task for a country that uses one-fourth of the world's oil while possessing only 3 percent of its reserves, and whose once-abundant supplies of natural gas are now severely stressed. A much better answer would be a national commitment to more efficient vehicles and to the rapid deployment of new energy sources like biofuels.

America cannot win President Bush's much-vaunted war on terrorism as long as it is sending billions of dollars abroad for oil purchases every day. It cannot establish democracy in the Middle East because governments rich in oil revenue do not want democracy. And it will never have the geopolitical leverage it needs as long as it is dependent on unstable foreign sources for fuel.

Wow, energy conservation might be the best way to fight terrorism...duh.

Also I just got back from watching "Munich". Violence begets violence...double duh.

That's one hell of a good editorial from the Times. Much more realistic than I've seen them in the past. They looked at the geopolitics, the supply etc. and added 2 + 2 together. It is remarkable for such an MSM publication, the sum of wisdom = exactly 4 and not some fuzzy 4 +/- 1.

But oil independence is a political buzzword and a myth. We can decrease our dependence--which is good but it would take many, many years to change our economy around to achieve something even approaching self-sufficiency. Still, it's good to see what they wrote. It is a small but important step in the right direction.

Although, as they do point out, the US would appear to be screwed...
... reduce the geopolitical leverage of capricious supplier nations....

Fast-forward one week, to last Tuesday, when Iranian officials, ignoring pleas and threats from Europe and America, broke the seals on its nuclear facilities. And why not? President Mahmoud Ahmadinejad and the clerics who run Iran know one thing that Western leaders also know but will not say: there is nothing the West can do because Iran has a bargaining chip - petroleum - that puts it out of reach. Iran is the second-largest oil producer in the Organization of the Petroleum Exporting Countries, after Saudi Arabia, and is home to some 10 percent of the world's proven oil reserves. Iran also has the world's second-largest natural gas reserves, after Russia's.
Having gotten ourselves into this dependency situation over about 25 years, it appears that Iran and Venezuela know who's boss now. Empire, can't last forever, never has, never will.
Well, Sweden have recently adopted a policy of ending ALL fossil fuel use by 2020. Note that is not just imported fossil fuels, it is ALL fossil fuels. Seems to me that, if Sweden's policy is even remotely viable, the US ending all dependence on imported fossil fuels by 2020 should be relatively trivial by comparison. All that is lacking is the will, its lack could be fairly interpreted as a death wish.

"Sweden have recently adopted a policy of ending ALL fossil fuel use by 2020."

Do you have a link to this? I would like to examine the path they intend to take. Regretably, I do not think it is even remotely viable, but there's nothing wrong with trying. I'm curious how much effort they have put into identifying specific technologies, policies, investments, etc. Given lead times, you have to start off pretty strong to do what seems impossible in only 14 years.  

They got an early start.
They only used 5% fossil fuel for electricity production back in....... 1999.
14 years to supply the population with electric/hydrogen does not appear to be that difficult.
Throw in some wave and ramp up some wind (very small % right now) and they are on their way.
Should be "supply population with electric/hydrogen  transportation"
Thanks. That is very interesting. I would not have guessed Sweden's fuel breakdown for power generation. I'm not sure the heavy hydro and nuclear approach will work everywhere, but you may be right in saying that Sweden is well on their way to minimizing or eliminating direct fossil fuel use.
One big advantage for them is the biomass.
They use this for electricity and for heat.
I can't remember the numbers, but many towns have a biomass plant that provides heat to many of the houses around it.  Although I'm not sure if their biomass program is sustainable.  If it's not now I'm sure they could start growing hemp or elephant grass, which produces much more biomass energy per acre than wood.
The U.S. could really do themselves a favor and start growing elephant grass and make it legal to grow hemp again.  Hemp was going to supply much of the pulp for paper and oil for plastic, until Dupont got involved.
There is no biomass program in Sweden, there is diverse biomass industry. The bulk of the biomass is forest biomass from our forestry industry and it is almost completely market driven.

Forest biomass is the traditional source of energy and building material, it has so far been sustainable for large scale use for about 500 years. Todays use is less intense near population centers then it were 100 - 200 years ago but it reaches farther into the forest areas. Most of the planted "industry" forests are former poorly performing agrocultural areas and vast previously by hand clear cut areas to make charcoal for metal and glass industry. We have for a long time had laws that require plantation and cultivation of new trees after cutting down the fully grown. The largest enviromental problems has probably been when these law makers has become overly ambitious and tried to optimise the laws for what they think is best for the industry.

I have some district heating statistics from www.svenskfjarrvarme.se from 2003.

Delivered district heating 47,5 TWh
Delivered coproduced electricity 5 TWh

Total fuel use 59,5 TWh
Oil 5,7
Coal 3,4
Wood 17,5
Oil from wood 1,7
Garbage 6,2
Industrial waste heat 4,8
Resistive electricity heat 0,5
Production form heat pumps 6,1
Peat 3,7
Natural gas 3,6
Other heat sources 6,3

Total lenght of culvers 14200 km
Efficiency 88%

District cooling semes to be about 1TWh.

From www.scb.se I get the follwing statistics for (2002) 2004 in TWh

                            Small houses     Apartments     Other houses
Oil                      (9.0) 7.8              (2.5) 1.9          (3.3) 1.8    
District heating   (3.0) 3.7              (23.2) 22.8      (14.8) 15.5
Electric heating   (1.,5) 16.3           (1.5) 2.1          (3.8) 4.2
Natural gas         (0.3) 0.2              (0.4) 0.4          (0.5) 0.3
Wood                  (9.9) 10.0            (0.2) 0.2          (0.3) 0.6
Total                   (38.6) 37.9          (27.8) 27.5      (22.7) 22.4

2002 was obviously a colder winter then 2004.
I base this on other sources then this.
Oil heating is shrinking fast, it will be nearly gone in a few years due to taxes and the world market price.
Heat pump installations are growing fast.
Resistive electrical heating is shrinking fast.
Use of wood pellets ins growing fast.
District heating is growing.

Thanks for the numbers.
I have done alot of research of different countries and they all start to run together after a while.
While we're at it, is most of the energy produced, by way of government intervention or more of an open market approach?
I live in Oregon and I believe we have the same climate, since your country is so far along maybe our state can learn a bit.
How are fossil fuel prices there? Are they keep low by the government like in the U.S.?
We already have a ton of hydro, but no nuclear, and in the area where I live it rains close to 100 inches a year, so trees grow like crazy, can you tell me a bit more about the biomass business in your country?
Almost all of the energy is produced in an open market approach.
But there is an intricate taxation system that mostly is fiscal in nature, is still think CO2 still mostly is used as an excuse to get higher tax revenues.

Most of the district heating systems are municipality owned in the same way as water ans sewage works. (We know pipes in streets, lets lay more of them. :-) ) They started out as a rational cooperation, became part of the more socialist thinking with service withouth profit and now most of them are cash cows for the municipialitys budget. There were allways a competition with other heat sources, oil, then resistive electric heating and now heat pumps and wood pellets.

Electricity production were mostly built by large companies who owned suitable streams and often had used them for a long time, by the national state and large municipalities. About half of the production is owned by the state company Vattenfall who is run with very little political influence as long as it delivers a handsome profit. Vattenfalls massive investments in coal power in Germany has resulted in some loud political noises. Manny of the manufaturing company owned powerplants and municipality owned ones were sold for short term profit about 10 years ago and a few years later they became currency printing presses. The electricity production in Sweden is now dominated by three companies, Vattenfall, Eon and  Fortum. But there is a large number of small producers. Electricity is traded on www.nordpool.com for all the nordic countries. The market is free but dominated by large companies who on the other hand try to keep the price high wich benefits the new and small producers. The free market do not matter much for small consumers since the get-the-wire-to-the-hous-tariff and taxes dominates the cost.

Electricity distribution has been done by hundreds of entities, municipialities, industries who built for their own needs and then their neighbours and different kinds of cooperations. They created natural monopolies since it did not make economical sense to run two sets of wires. They have then slowly consolidated and a lot of them are now owned by Vattenfall, Fortum and Eon. The tariffs has been limited by law and there are laws regulating the minimum service that recently has become much more stringent to speed up rural cablification. Not a free market but has more or less been run as one.

Fossil fuel prices are kept realy high by taxation.  About 60% of a m3 of heating oil or a litre of petrol is tax. Multiply the world market price with 3 and you more or less get our price.

The biomass industry is dominated by forest biomass. Most of the forests are privately owned and the tradition to use and cultivate forests is very, very old.
About 3.5% of our population own 5-400 ha of forst and often live on the farm or drive to it from a town to cultivate it as a hobby and extra income.
About 50% of the forests are privately owned by individuals, 25% are owned by companies and 25% by the state.  The market for all kinds of forest products is completely unregulated, even the quality standards are set by the market participants, I do not know if it has ever been regulated since we industrialised. But there is taxation, enviromental laws and so on.

The oil crisis in the 70:s led to the same thing as in France, a massive  replacement of oil by electricity from nuclear power. Hydro power was already more or less maximised, we did not want to use the last 4 almost untouched rivers. Then the anti nuclear movement tried to replace nuclar power with among other things biomass power. Our state, industry and power companies kind of waited that out and the biomass for power replaced even more oil. The resent years of even higer taxes is now killing the last of the oil heating. Most of the forest biomas has been and is been used for pulp and lumber and then paper, plywood etc. Those industries early started burning wood waste for heat and steam and then part of the electricity needs and now will manny pulp plants propaby start to syntehtiseize liquid fuel from it.

Heating with wood in a fireplace is the old traditional heating method and it is still popular since it is impossible to tax and cheap if you own a piece of forest.  Muncipials district heating systems were mostly run on cheap oil untill after the oil crisis when they switched to coal and biomass and then garbage and biomass.

The methane production in Sweden from biomass (field crops, food production waste, etc) is according to Gasföreningen, a cooperation "club" for all kinds of gas companies, currently 1.4 TWh/year and they think it can be increased to 14 TWh/year in 10 years.  
There were right now a short notice in the radio news about the heating oil sales in Sweden during 2005. Down 20% compared with 2004 due to replacement by wood pellet burners and heat pumps and there are layoffs in the oil distribution companies. But they did not report absolute numbers, it is going down from a low level.
What is "oil from wood"? Is it a real hydrocarbon? What's the energy efficiency (with and without the energy in the wood itself) and the capital requirement? Does it work on ag waste? Why aren't we doing it here?
> What is "oil from wood"? Is it a real hydrocarbon? What's the energy efficiency (with and without the energy in the wood itself) and the capital requirement? Does it work on ag waste? Why aren't we doing it here?

It was a very bad translation, sorry about that, I realy mean pine-needle-oil.

There are reserch projects with pilot plants for gasification of "svartlut" (...ditionary failure... used process chemicals who has dissolved lignin to free the celulose fibres that is usually burned in a special boiler to recycle chemicals and produce steam for electricity and process heat) to get synthetisizing gas for Fischer-Tropsch diesel, methanol or DME. Or for burning the gas in a gas turbine to get more electricity then in a simple steam cycle.

This will be a real wood-to-liquids process and it is more or less the same as coal-to-liquids but with pulp plant secondary product (Its too usefull to call it waste)  as feedstock. Some people think it can replace 25% of the diesel use in Sweden. It will probably be introduced as a complement to the current boilers since they are a bottleneck in manny pulp plants.

Electricity production in Sweden 2003

Translating tabe and 2003 statistics, it varies a lot depending on rainfall

Vattenkraft inkl. pumpkraft   -Hydro power including pumped storage 53087 GWh
Kärnkraft  -Nuclear power 65454 GWh
Konventionell värmekraft -Non nuclear heat power  13315 GWh
   kraftvärme, industri       -Industrial heat power 4637 GWh
   kraftvärme, fjärrvärme   -District heating coproduction 6694 GWh
   Kondensproduktion       -Condensing powerplants  1882 GWh
   gasturbin- och annan produktion -Gas turbiens and other  102 GWh
Vindkraft -Wind power 679 GWh

If i add hydro power, nuclear power, wind power and industrial heat power while ignoring district heat electrical coproduction as a fudge factor I get a total production of 123849 GWh divided by a population of aprox 9 million
gives 13761 kWh per capita, a continous 1570 W.

Here's a link, Jack:

Sorry for not replying sooner, haven't had time to get online. It's at an embryonic stage ATM, detailed recommendations due in about 6 months.

Our current government has adopted such a policy and they will hopefully loose the next election. Hopefully since they from my point of view are unable to provide the kind of government down sizing, debureaucratization, etc needed to give us in Sweden a more flexible business climate where it is easier to start and run companies. They have had the power for a very long time and manning and our ever growing state bureaucracy has started to become their familiy business. Swedish corruption is not to take bribes but to provide family and friends with jobs paid by tax money.

In times of change that at the worst could be like when we industrialized a little more then a hundred years ago we dearly need it to be easy to create new jobs. Otherwise things will not get done, people will get poor and we will losse a lot of the ability to do anything about it.

The no fossil fuel in 2020 is impossible since there is a fossil fuel content in nearly everything and nearly possible since most of the fuel uses could be gone by then. But it is the wrong goal, a better goal is to make our economy much less sensitive to runaway fossil fuel prices, this also means getting rid of the bulk of the fossil fuel use. But then it does not matter if it for instance is easier to use fossil oil feedstock to synthetiseize alcylate fuel for chainsaws. There is no need to be perfect, the need is to be efficient and use our available resources, then we can outbid the rest of the world for the oil we still need.

Setting the goal "no oil" can give bad optimizations and for instance be interpreted as a reason to hinder the development of the oil refineries in Sweden. I am a little allergic to oversimplified political goals even if I know thet the can be efficient propaganda.

"...the clerics who run Iran know one thing that Western leaders also know but will not say: there is nothing the West can do because Iran has a bargaining chip - petroleum - that puts it out of reach."

Well, a lot of Western leaders know this, but of particular importance right now is a Western leader who is needing a fresh war as his Iraq adventure descends deeper into hell and the global war on terror itself grows stale.

And what are the maniacs like Cheney whispering to Junior?  Could it be:  Air Power!  Sy Hersh and others have been writing about this coming US strategy.    But are they forgetting about the oil?   Can they be that dumb????    Dum da dum dum   dummmmmmmmmm

Geo, I think you may be misunderstanding Bush's motivation. If he thinks Iran getting the bomb will mean 1) bin Laden may get one or 2) Israel will get nuked, he will bomb Iran for three days to delay them getting the bomb for 10 years. Bush takes seriously his oath of office to protect the USA. He may make a bunch of dumb decisions in the process, but that is the measure of the man in my estimation.

Israel may do it on their own for self preservation.

You have had two Presidents of Iran and other upper level leaders in Iran who do not have a problem in losing up to 10 million Muslims to knock Israel off. They have stated so much, though I find it hard to believe they mean it, but maybe they do.

Getting oil cut off from the Gulf for some period time will not matter in making that decision, well, it WILL matter but they will make that decision anyway. We were all brought up on follow the money, but another twin towers will make Bush's 8 years in power meaningless to him.

P.S. if you invest in oil stocks, stay away from Middle East oil stocks. Canada is probably the safest haven for now.

Cracks appear in united front as oil price threatened

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/01/16/wiran116.xml&sSheet=/news/2006/0 1/16/ixnewstop.html

Germany's deputy foreign minister, Gernot Erler, appeared to break ranks with other western countries when he predicted sanctions could rebound on the West.

"We have a global situation in the energy sector where we are seeing desperate measures by Asian countries, mainly from China, India and others, to get hold of energy resources," he told Inforadio Berlin. "For them Iran is a partner they can't do without."

Battle rages around oil platform in Nigeria

On Wednesday, gunmen attacked Shell's EA platform in shallow waters near the delta coast, seizing a Bulgarian, an American, a British and a Honduran. A major Shell pipeline leading to its Forcados export terminal was blown up the following day.
Though Shell resumed some production cut last week, the first two attacks initially forced a 10 per cent drop in Nigeria's oil exports.
A previously unknown militant group, Movement for Niger Delta Emancipation, claimed responsibility for first two attacks, warning all Western oil companies to leave the Niger Delta for their safety and calling on the government to release militia leader Mujahid Dokubo-Asari.

the "empire" is on the way out

Regarding Gernot Erler, who is a longtime Bundestag member elected from the town where I live - his appointment as deputy foreign minister in Germany was a surprise as he is a grassroots diplomat and not one of the big insiders. He has extremely close contacts to many Former Soviet Union republics, especially Kazakhstan, and other nations. He isn´t "breaking ranks",  he is simply thinking  in a reality-oriented way about the consequences an Iran embargo would have. And given that he has so many contacts to our friends in the East who supply Germany with energy it is clear that he is quite aware of the strains on the global energy supply and the havoc that removing 2.5 million barrels per day or so of oil from that equation might wreak. Especially given that an Iran confronted with a starvation blockade might decide to do some blockading of its own, which would capture much larger parts of the oil flow.
So, he is simply being frank where other politicians are pretending their actions will not have repercussions. And this frankness, together with looking like a first-generation Klingon, have made him so popular with voters :)
Perhaps this has been dealt with at TOD, but I'll lay it out anyway. First, I would guess that the oil/gas industry is the most capital intensive of any. Second, it would seem that with peak that this can only go up much more quickly. Third, this will drain capital from all other branches of production. The means the impoverishment of the rest of the economy, including the parts necessary support to the oil/gas industry itself.

We already see some of this in 3rd world countries where the oil is extracted. Oil people fly in and out, drive through and around impoverished areas, which
is basically the whole country in some cases. But the infrastructure needed to keep all this going is situated in the US or some other "advanced" country.

At a certain point, the "advanced" countries are going to have greater and greater difficulty supporting this highly capital-intensive infrastructure. It means that all other parts of the economy will be looted to keep the oil infrastructure running. This is one major reason I think the survivalists among us are not facing
reality---the big boys will not leave anyone in peace.

Anyway, aside from my blather above, does anyone have some kind of handle on the capital-intensity issue in any kind of even roughly quantitative way?

1. First a definition (since I wasn't sure exactly what it meant): "Capital intensity is the term in economics for the amount of fixed or real capital present in relation to other factors of production, especially labor."


In this regard, I don't think capital intensity is the most important measure, as it is largely determined by the ration to other inputs. I think it would be more useful, for purposes of your question, to look at the percentage of GDP (or percentage of national/global capital expenditures) that goes to investment in energy. If this is especially high and/or growing rapidly, you could have a point.

2. It would appear that the entire energy sector is among the most capital intensive, but there are others at, or near the same level.


  1. My impression is that the value of capital invested in energy as a portion of GDP has been decreasing. It seems clear that global oil majors are not reinvesting increasing levels of capital in recent years. This is, in part, because other sectors are able to compete with energy and offer higher returns. This would not indicate that energy can block out other capital needs. It is also difficult to measure as most oil is now found and produced by national oil companies that do not release information publicly.

  2. I looked (briefly) around the EIA and IEA websites and couldn't find capital expenditure figures for energy versus other industries (or changes in energy capital intensity), although I thought I had seen figures before. I would like to see such data if anyone else can find it.

  3. Conclusion: I do not think it is possible for energy investment to crowd out other investment. I think as long as consumers (and other oil purchasers) have cash to spend buying energy, there will be no shortage of capital for investment. But perhaps this is where the problem lies. If energy expenses to consumers rise to high, they do reduce their ability to purchase other products - reducing the revenue and capital availability of these industries.

This is mostly guesswork and not as quantitative as you had wanted. I hope it is useful.
I have surfed various Peak Oil
sites for about 6 months now and
have been quite impressed with
the various analyses of the pro-
blem presented. However,it seems
that one fundamental aspect of
the problem is either never dis-
cussed or simply glossed over.
That is that, if any society
(America in particular), chooses
to use oil as a main energy choi-
ce, it is her decision and her
decision alone to do so. Further-
more, the decision to use this
energy in an abysmally wasteful
manner is, again, entirely the
consumer's choice. Therefore, it
would be logical for the consumer
if he/she sees a future supply
problem re. that energy source,
to first remedy the waste problem
before rushing off to find "alt-
ernate" energy sources which
will also just be wasted.So my
humble advice is: before you
rush off to create everything
from biofuels to solar-powered
anti-gravity machines and before
you blame your energy woes on
everyone from Al-Queda to home-
grown environmentalists,cut out
the waste you are guilty of and
see how much less energy you
really need to use to maintain
the lifestyle you are accustomed
to. In future posts, I intend to
outline the steps I took to do
just that.
You are right, but the way to stop wasting energy is raising the price.  The simple way to do this is to stop the subsidies given out to the fossil fuel indutry (among others) and lower taxes on the working folk.
Let the market (consumers) decide which energy source is the cheapest and the most reliable.
This is very hard for me to say because I am activly working on bringing biodiesel/windpower/biomass (not ethanol) to my area, but I believe these would be cheaper energy sources if there was an even playing field.  I can't be for sure that the whole Iraq debacle wasn't for oil, but the evidence is there.  Same goes for aid to oil rich countries as well as military support.  I count these as subsidies also, although many would disagree.
Not to sound too much like a jonny-one-note, but it seems to me there is a magic wand here- just put the REAL price on all forms of energy and then let the market do the rest.  By real I mean all the costs that we ignore- subsidies, insurance, health, global warming and all the rest that we know full well are really there.

 Right.  It ain't politically possible,  but if we just talk a lot about it, it could get to happen eventually. Hope, hope, hope springs eternal.

You might want to read some old posts here first, so we aren't just seeing the same thing over and over. Your humble approach will get more results if you read the hundreds of posts here on waste, conservation and efficiency before lecturing us about not discussing the topic.
bp has produced less oil, they blame katrina, but too me the figures dont add up...

http://www.mywesttexas.com/site/news.cfm?newsid=15933002&BRD=2288&PAG=461&dept_id=474107 &rfi=6

In a trading update, BP estimated that its output had averaged 4.010 million barrels of oil equivalent per day in the three months ended Dec. 31, 2005. That figure compares with 3.824 million barrels of oil equivalent per day in the third quarter of 2005, and 4.095 million in the fourth quarter of 2004.

BP said growth in new profit centers and the completion of the planned maintenance season was partially offset by the impact of hurricanes Katrina and Rita, which cost the company around 160,000 barrels per day in production.

I'm debating the use of alternative energy source on another forum and someone stated
Pretending for the moment that the Hirsch report is based on something more than mere supposition, which it isn't, the transition process has already started.

I never quite thought about the Hirsch report being based upon supposition but I suppose you could look at it that way..  Any other thoughts??

Let me ask the obvious: what is the supposition in question?
I believe its has to do with the time of peak and time needed for transition to another alternative fuel. And if I am not mistaken, if peak occurs and society has not make any transition to another fuel, then we could face decades of fuel shortages.. Or something like that.. I hope this helps..
AFAIR the report presents 3 major scenarios in which the mitigation begins 20 years prior to peak, 10 years prior to peak and no mitigation is initiated until the time of the peak. The conclusions are that only the first scenario will not result in harm to the economy, the second will result in 10 to 20 years of shortages, and the third one presents great risks for the stability of the whole system.

Personally I don't see any weak assumtions in this analysis and that's why I wandered where exactly is the problem... If the supposition is that oil eventualy will peak at some point of time I think that this supposition is a very strong one.

New Fortune Article on Rapid Climate Change (haven't found a link yet--just got my hard copy)

1/23/06 Issue:  "Cloudy with a chance of chaos"

From the article:  "A best case outlook for the West:  drought and wildfires"

i just read an article in Oil and Gas Investor magazine, Littell: World oil production will peak soon on page 17 as i recall, it was mentioned that peak oil possibly occurred globally in 2002, and we are currently at 4% reduction post peak. And separately in another article, same magazine, it was mentioned that despite the rig count at 100%, the U.S. gas supply continues to drift downward.
I don't really know where and how to quickly validate worldwide production info, but based on EIA right hereI can see how US production can be validated, and though i have not run the numbers, i'd say the author is right, (pertaining to US production) based on just eyeballing the data briefly.
My question is why hasn't wallstreet picked up on this? truly oil should be a whole lot more, as well as natural gas.
Is this just the quiet before the storm?  
As I mentioned in an earlier post, a hedge fund guy I know says "everyone" on Wall Street knows about peak oil. In fact, he was quite familar with Hubbert's curve. He reminded me that the Street is concerned only with the short-term, and peak oil is not yet a short-term problem. When I asked why the rest of us don't know that "everyone" on the Street knows about peak oil, he reminded me that 99% of what is produced for public consumption on the Street is marketing and PR. Why should they bother telling us hoi polloi what they really think? I know--this is only one piece of hear-say evindence; still it makes sense to me.

As for the price, the current $64 is the market clearing price. Obviously, as demand increases and/or as supply drops, the price will rise. As has been pointed out already, at the current price there already seems to be plenty of "demand destruction" going on in the less-developed world.

Hedge funds are a small and fairly quirky subset of "Wall Street". Most aren't even located there.

Equity research - the division of investment banks that covers and values publicly listed companies including all oil majors - by law must use only publicly available data. Equity analysts produce research for hedge funds, mutual funds and other investors. These entities wind up paying quite a lot for it. Regardless of what you friend says, they don't view it only as PR.

The reports will cite EIA, IEA, CERA and internal data. But nobody out there is buying research on publicly listed companies that is screaming that a peak is upon us. The reality is that that many hedge funds believe in peak oil, many don't. Many equity analysts do, many don't. They're all human. Once it appears that long term recovery prospects are so poor that energy firms need to write down the value of capital equipment, valuations will change. They haven't yet.

It is inaccurate to say that Wall Street is only interested in the short term. Look at a DCF valuation for ANY company. I promise that the vast majority of the value is in the "terminal value" component which refers to all cash flows after the model period of 5 - 10 years - ie. long term.

Imagine you were betting on a marathon and could change your bet during the race. You are only concerned with the final result. However you may change your bet depending on where people are at much shorter intervals. This is because who is leading early is a good indicator for who will finish ahead later. Likewise, short-term indicators move markets because the point to prospects for the long-term.

Hedge funds and traders look to the short-term because the make money on trades or (often) by switching in and out of assets. However, the overall value is based on long-term returns.

DCF isnt really the main benchmark used to value equities -particularly oil and gas companies. Pro-forma earnings are calculated or current earnings for an established company and a P/E multiple, depending on risk, the growth in the industry etc is applied. In this sense, the discounted cash flow is 'implied' but not really used, as the predominant factor to price the stock is next years earnings.

Even more true in oil and gas - its all about 'proving up reserves' and short term earnings.

And if oil goes to the moon because long term prospects for drilling are poor, small E&P companies will go up much more than big oil, due to a) the write off of cap equipment you mentioned b) Simmons comment that big oil co.s will get 'expatriated' out of their contracts with sovereign partners and c) majors will have no choice to add reserves by buying smaller and smaller frys.

You are right that relative valuations (ie. PE) are the main benchmark used in equities. However, this doesn't undermine my arguement. Best practice takes multiples from a DCF model (so I would say it is used) and as you note long-term cash flow is incorporated or implied in decent multiples. Day traders may be comparing firms on one year unadjusted PE, but the market isn't.

However, none of this has much to do with the arguement that long-term cash flows are more important to the valuation of a company than short-term.

Note, the date of the oil and gas investor magazine as mentioned above was Sept 05.
The accusation that the Saudis are inflating their reserves is based largely on an old tale. Between 1984 and 1988, the five largest Persian Gulf oil countries--led by Saudi Arabia--raised estimates of proven oil reserves by 40 percent, or a total of 237 billion barrels. The hikes are generally seen as tactical moves in a struggle to obtain higher production quotas within the OPEC cartel. Since then, the producing nations haven't substantially lowered those estimates, despite all the oil they have been pumping. The implication the doomsayers draw is that OPEC reserve estimates must be increasingly inflated.

Yet the original revisions came after many OPEC countries nationalized the concessions of the big Western oil companies, which had capped output to keep prices high. The oil companies consistently underestimated reserves in order to resist pressure from their host countries to raise output and revenue. All the OPEC countries did in the late '80s was to adopt more realistic estimates. Nor is it surprising that the estimates have remained stable since: rising prices allow producers to shift more oil into the category of economically accessible reserves, and most Persian Gulf states have invested in exploration at a rate designed to replace existing reserves.


It's very interesting that Big Oil executives, like this one from Eni, are consistently talking-up reserves and talking -down the price of  oil.
I read a comment from Rex Tillerson of XOM  that URR could be as high as 7 trillion barrels.
Perhaps Simmons is on to something:

Barrons: Why does ExxonMobil have a different view of where the oil price is headed?

Simmons: I don't have the vaguest idea why they could ever think we are going back to $25 oil other than their business model desperately needs that to happen to have their long-term strategy work. High oil prices are very bad news for big oil. The higher the price, the more proven reserves they've already booked they lose in these foreign concessions, because once their projects hit their payout targets, then the host government's share rises. I think the major oil companies are lost in the wilderness right now

Good grief - what an extraordinarily disingenous article. How can anyone look at this graph and argue they have a clue what the true situation is based on it. I sure don't see how anyone can extrapolate time series like these:

Only Mother Nature knows how much extractable liquid hydrocarbon is down there.

We humans don't know for sure. We're just guessing --mostly guessing blind; and in the case of Saudi refusal to allow independent audits, relying merely on their say so.

The "Proved Reserves" number is a fabricated accounting number that we humans produce, as Bubba explained eleswhere, reflecting our current belief of how much crude is "economically" extractable to a given degree of our own self-aggrandizing confidence level. We're betting our lives on it.

click on image to see PBS article

P.S. Funny how most of the oil is near the Equator (Fertile crescent of the ME, GOMEX, Texas). Guess that proves it is abiotic. Clearly the least amount of photosynthesis over the millenia occurred at the Equator (being sarcastic here of course).

Thank you Stuart. I was stunned to read the assertion that a polically based increase of reserves of 50% over 20 years ago just happened to exactly match current reality.
With all these long comment sections, it would be great if the nav bar (Last post-Home-Next post) was also at the bottom, below the Next 15 bar.  It would save a lot of scrolling back to the top.
Agreed. Or maybe a button to just see new posts. I spend a lot of time srolling up and down huge collections of posts. It is worth doing, but why not find a better way.
I have tried to find info on how and why Australia dropped their natual gas reserves estimates by two thirds.  

right here

that is quite a drop, did they have dyslexic data entry persons? anyone know why?