HO v. Econbrowser: Title Fight...Round 20! (and another open thread)

That's right people. Saturday, Saturday, Saturday! On the Northern Alliance Radio Network tomorrow, via streaming audio that can be found by clicking here at 2pm CDT Saturday, it will be the esteemed HO vs. the venerable JDH in an engineering versus economist intellectual slugfest rematch for the ages.

Damn, I should go into marketing...

[Editor's note] This is a brand new open thread. However, our "The Politics of Oil: The Discourse Must Change" is also under the fold of this post. Our position paper is also available as a PDF press release. Please take this .pdf and print it out/give it to others, or send this link (right click here for initial post address) to anyone you think needs the information contained therein. Politicians, media, blogs, you name it...it all helps. It is only through these small actions that the discourse can be changed. Thank you.

Leaders of both political parties are expressing concern about the high price of gasoline. President George Bush announced yesterday that he was suspending deliveries to the Strategic Petroleum Reserve in order to make more oil available to consumers as well as putting on hold the traditional regulations requiring additives to make fuel burn cleaner during the summer driving season.

Meanwhile, Democratic leaders have had their own response to rising gas prices. Senate Minority Leader Harry Reid has announced his support for the Menendez Amendment, which would "provide more than $6 billion in relief directly to the American people by eliminating the federal tax for both gas and diesel for 60 days." Senator Charles Schumer recently called for a federal investigation to determine whether oil companies are withholding gasoline production, and House Minority Leader Nancy Pelosi has blamed high gas prices on the administration's cozy relationship with the oil companies, price gouging, and royalty relief.

The editors of The Oil Drum are ideologically diverse. Over the last year, we have created a forum at www.theoildrum.com to encourage an open, rational, and fact-based discussion of energy issues. While individual editors frequently express an opinion on a subject, we have never felt it necessary to take a unified position on any specific issue. That is, until today.

We strongly feel that the leaders of both political parties are not only headed in the wrong direction with respect to gas prices, but we also worry that they fundamentally misunderstand the factors behind the current situation at gasoline stations around the US.

Public statements by political figures over the past several days would seem to suggest that oil companies and their record profits are the sole factor determining the price of gasoline. Not only is this untrue, but it is dangerous to give the American people the impression that only oil companies are to blame. The American people need to understand that the phenomenon of high gas prices cannot be attributed to a single source. They also need to understand that no one political party will be able to fix our current woes.

The major factor that determines gas prices is the price of crude oil from which gasoline is derived. When crude oil prices are high, so are gas prices. The following are just a few factors that affect the price of a barrel of oil:

  1. Oil companies do not single-handedly determine the price of oil. The price of oil is set on the crude oil futures market. Simply put, these prices are affected by supply and demand because, at present, oil trades in a global commodity market where increased demand or reduced supply in one place instantly translates into price shifts everywhere. A variety of publicly available information sources show that supply is relatively static at the moment, while world demand continues to grow as economies grow.
  2. We have provided evidence many times at The Oil Drum that the output of major oilfields is declining and that we may now have reached a peak or plateau in global oil supply. Oil companies have not been able to increase production for a number of years, and it is unclear that OPEC is accurately reporting their reserves. Even if there were significant sources of high quality oil remaining, it is getting increasingly difficult and expensive to drill. These factors, along with aging infrastructure for oil exploration and a retiring workforce are also contributing to high oil prices.

  3. The geopolitical situation is volatile, and an astute citizen may notice that every time there is news from Nigeria or Iran, the price of oil goes up because of the potential and real effects of these situations on world oil supply. Again, oil traders are fearful that the supply will not remain stable forever.

  4. Countries like China and India are industrializing at a great pace, and while we are accustomed to obtaining oil at a comfortable quantity and price, it will be impossible (and immoral) to deny similar resources to these countries. China is working furiously to secure new oil supplies, and they're content to negotiate with countries we're reluctant to deal with, like Iran and the Sudan.

These points demonstrate that disruptions in the supply of oil that affect the price of gasoline at the pump are not just a temporary glitch. For various reasons--decreased discoveries of new oilfields, geopolitical instability, international competition for oil supply--we can no longer assume that we will be able to consume as much oil as possible, or ever get it again for $1.50 a gallon.

Demagoguery and grandstanding are not strategies for addressing our energy problems. As an alternative, the editors of The Oil Drum put forth the following recommendations:

  1. It is nonsensical for political leaders of both parties to eliminate the gas tax temporarily or permanently as this will only worsen our dependence on oil by disincentivizing the innovation of oil alternatives and oil conservation efforts.
  2. Both mainstream American political parties are doing their country a disservice by accusing convenient scapegoats of price gouging or price fixing instead of educating the public about how the price of gas is actually set.
  3. Right now, governments should be focused on helping us cure our "addiction to oil." The answer does not lie in lowering gas prices, which will only encourage people to drive more and further waste our valuable resources. As the Department of Energy funded Hirsch Report on Peak Oil laid out, the consequences of not taking steps to transition away from oil could be dramatic to our economic system. Appropriate solutions include large-scale research, development, and implementation programs to improve the scalability of alternative sources of energy, other projects geared towards improving mass transit and carpooling programs across the country, providing incentives to buy smaller and more fuel efficient vehicles, and promoting a campaign to increase awareness about conservation.

The political discourse on this topic is simply so devoid of fact, and constructive discourse so buried and out of the mainstream, that we felt we needed to raise a voice of reason. Public officials will continue to misinform and obfuscate if we allow it.

The only solution is to educate the public about the most important problem we face as a generation. We, the citizens of the US and the world, must move our attention to this the issue of energy more than any other. We must hold our representative governments accountable for having an open and honest debate on the subject.

Simply put, we must learn more about where our energy comes from.

Whoa! I tend to think that JDH is sympathetic to what we're doing here. What could this debate possibly be about? What have I missed? Hamilton has published some stuff -- the "random walk" post on oil prices but he himself pointed out that this analysis -- well, to put it bluntly -- sucks. He seems well aware of the price signal (going up) and the supply available versus the quantity demanded imbalance.

So, I'll listen with interest to what finer points these fine gentlemen will find to disagree about.

I'm looking forward to the HO JDH debate. I'm sure it'll be more enlightening than the "peak oil is a myth" discussion that's taking place over at the Gas Prices Forum right now.

Sigh. I'm afraid this may be an accurate indication of public sentiment.

Today's NY Times has an interesting piece on the front page Trading Frenzy Adding to Rise in Price of Oil. I was particularly struck by the huge influx of money, much of it from hedge funds, pouring into the market. But this happy juxtaposition made me laugh.
According to Cambridge Energy Research Associates, an energy consulting firm owned by IHS, Iraq is 900,000 barrels a day below its prewar output; Nigeria has shut 530,000 barrels a day; Venezuela is still 400,000 barrels below its prestrike production; and the Gulf of Mexico remains down by 330,000 barrels a day. In all, this amounts to more than two million barrels of disrupted oil, Cambridge Energy estimates....

"It is the case," complained BP's chief executive, Lord Browne, "that the price of oil has gone up while nothing has changed physically."

When somebody blows up a pipeline in Iraq or Nigeria, or a hurricane blows through the GOM, I (perhaps naively from Browne's point of view) consider that to be a physical change...

But of course when the world is pumping between 84 and 85/mbpd of liquids (boe), then I think that's a physical change too. That much oil has just disappeared from the ground, never to be seen ever again...

The title of this article may be somewhat misleading.  After a careful read of this article, you may come to the conclusion that the 'trading frenzy' may also have to do with hedge funds expecting oil prices to drop.  Recent business news articles, and even various opinions voiced on business news shows, indicates traders may be expecting prices to decline - and, if anything - are pushing prices lower.

Sure there are some like Pickens and Simmons who see a steady and relentlessly higher market price for oil.  However I suspect most traders actually expect oil prices to fall, if only because they are at the highest by historical experience.  This goes against the myth of the evil trader who is only working to raise oil prices for his/her own benefit.

Lordy (oh lordy!) Browne has an extensive track record as a pathalogical liar.
Google some of his bare-faced public pronouncements over the last couple of years to get a taste.
Is it possible for someone to streamrip/record the event, and then post it here for international users? (Who would be asleep at the time)
Below is my 4th Draft of what I will be handing out at the DC Conference and "elsewhere".

Any comments or suggestions appreciated.

I am trying to focus on a major, but overlooked strategyto reduce oil consumption.

Best Hopes,


Note: Formating lost in cut & paste
10%  Reduction  in  US  Oil  Use  in  Ten  to  Twelve  Years
An Overlooked, Practical and Affordable Approach using Mature Existing Technology

Step One - Electrify our Freight Rail Lines and Shift Freight to Rail

The Russians finished electrifying the Trans-Siberian Railroad, from Moscow to the Pacific, in 2002 and electrified to the Artic Ocean port of Murmansk a few months ago on Christmas Eve, 2005.  Almost all of Japan and continental EU have already electrified their railroads.  So there are no technical limitations.  Electric railroads are cheaper to operate and can carry more freight because they accelerate and brake faster (and can generate electricity while braking, saving energy).

The US used 19.8 million barrels/day in 2002 with 2/3 for transportation.  (Today, ~20.7 million b/day).  Railroads carried 27.8% of the ton-miles with 220,000 b/day whilst trucks carried 32.1% of the ton-miles with 2,070,000 b/day (2002 data).  Railroads are 8 times more energy efficient than heavy trucks, and also more labor efficient.  In the era of cheap oil and interstate highways, US railroads cut back capacity and ceded much cargo to trucking.  Today, intermodal shipments (local trucking, long distance rail via containers or roll on/roll off) are growing rapidly but this trend MUST be accelerated !  Electrifying railroads
and transferring half of the ton-miles of trucks to rail should save 6.3% of US oil consumption.

US railroads have pointed to property taxes as the reason that they did not electrify (no taxes on their diesel, property taxes on electrification).  Simply exempting any rail line that electrifies from property taxes under the Interstate Commerce clause will rapidly electrify many rail lines.  Expanding capacity (adding tracks) and more intermodal transfer points will be more economically attractive without the burden of property taxes.

Removing property taxes on railroads would take "the thumb off the scale" in the economic competition between rail and trucks.  Local jurisdictions that lost more than certain percentage in tax revenue could have the excess compensated by the Federal Government for 25 years, each year decreasing by 4%.

Step Two - Increase Urban Rail Federal Funding

In 1970, 4% of DC commuters used city buses to get to work.  Today about 40% do.  The difference is the 106 miles of Washington Metro.  It has been estimated that Washington Metro saves a half billion gallons of gasoline/year directly, with at least as much more from changes in development patterns.

Miami has passed a half cent sales tax to build a 103 mile system of elevated "Subway in the Sky" over 25 years.  The author has been told that 90% of the population will be within 3 miles of a station and over half within 2 miles.  A reasonable number will be within walking distance.

http://www.miamidade.gov/trafficrelief/RailMap.htm  (Note: dark brown lines are 2016+ plans)

But why will it take 25 years to build this system that will transform Miami as Washington and San Francisco have been transformed, saving billions of gallons of gasoline ?  Because FTA funding has declined from 80% for "New Starts" rail projects to 50%.  Restoring that funding to 80% (or better yet 85% or 90% for the best projects and 75% for marginal projects) will speed existing plans in Miami, Denver, Dallas, St. Louis, Salt Lake City, Northern California, Northern Virginia, Portland, New Orleans, New York City, Los Angeles and many other cities.  An explosion in Urban Rail, from streetcars in small cities to Light Rail in larger cities and Rapid Rail in the largest cities with commuter rail everywhere is certainly possible and probably likely with better federal funding.  Budget space could come from reductions in federal highway funding or as a supplement for the SPR.  Building the equivalent of twelve DC Metros would save 4% of US oil use.  The entire US economy would benefit more from this than additional highways.

Step Three - Promote Electric Trolley Buses

Electric trolley buses are cheaper, lighter, last much longer, pollution free, and are quiet, smooth (much less jerky) and more attractive to passengers than fossil fuel buses.  They obviously require an electrical infrastructure.  Four US cities currently operate electric trolley buses and a fifth will soon.

Hybrid buses, with minor engineering changes, can operate part-time as electric trolley buses and off-wire for part of their routes.  This mixed use would significantly reduce their diesel fuel consumption.

The FTA currently funds 80% of bus replacement costs on a twelve year cycle.  Many experts feel that 15 years would be more appropriate.  Perhaps FTA could fund fossil fuel replacement buses on a 13.5 year cycle at 75% and trolley buses (with their infrastructure) at 90%.  Again, cuts in federal highway aid could easily pay for this.

Step Four - Promote More Transportation Bicycling

Simple steps, such as more bike racks in city downtowns, perhaps replacing car parking spaces or in unusable spaces, would make bicycle commuting easier.  Streets with excess capacity could have one traffic lane converted to two bike lanes.  This is a city by city effort, with differences in every locale.  So a national program is less effective other than making it patriotic to bicycle to work, school and shopping and promoting secure bike racks at Urban Rail stops or allowing carry-ons.

Step Five - Create a Strategic Rail Reserve to Extend the Strategic Petroleum Reserve

Suppose, as one of several possible examples, that the Islamic Republic of Arabia replaces Saudi Arabia and the new Islamic Republic exports only enough oil (at elevated prices) to buy food and other essentials (no longer having to support 6,000 Princes in ultra luxury).  The United State would face a severe and prolonged oil supply interruption.

The US would immediately institute a variety of oil conservation measures; 50 mph speed limit, 4 day work week, limited sports events, restricted air travel, etc. We would immediately start draining the SPR.  Demand for electrified Urban Rail would swamp the capacity of every system in the country.  Freight railroads and Amtrak would also likely be overwhelmed.  Once the SPR is over half drained, perhaps in 3 months, even more severe oil demand restrictions would be required, such as rationing.

Every Urban Rail system, and almost every line, can handle more passengers if they had more rolling stock.  Their capacity is limited in other ways as well (platform length, Park & Ride lots, bicycle racks, etc.) but rolling stock is almost always the first limiting factor.  Likewise, certain types of rail cars would be the first limiting factor on our freight railroads.  So a Strategic Rail Reserve would allow existing Urban Rail to carry more passengers and more railcars would allow more freight to be shifted from trucks, thus reducing US oil demand in another dimension and allowing the SPR to last a few days longer.  Once the SPR is exhausted, the SRR (and all the steps above) would still be benefiting the nation.

Buying more railcars would be cheaper and better than buying more oil for the SPR.  Rail cars are made in the USA, their benefit will last MUCH longer than extra barrels of oil, they can be used and not disappear in even minor oil supply interruptions and they are cheaper, per barrel saved, than $75 oil.

Every Urban Rail system should estimate their likely demand in the case of an oil supply interruption and what would be required to handle this demand at 60% of crush load.  In some cases, soon to be retired cars could be mothballed, but new cars will be required for the SRR in most cases.
This policy summary is not an exhaustive list of all that can be done, nor does it cover all the policy implications of the proposed steps, but it is all that can fit on two pages !

These proposed steps will complement the widely discussed steps of more fuel efficient cars, ethanol et al.  They are complementary and not mutually exclusive.  And the steps outlined above can be started immediately, require no new technology and will have a significant impact in the medium term.

It should be noted that taking these steps will affect US oil supplies faster than drilling in ANWAR, produce at least twice as much oil as ANWAR and never deplete (Prudhoe Bay, Alaska is producing at ~20% of it's peak, Washington Metro hits a new peak in oil saved every year).

It is also worth noting that four American cities; Washington DC, New Orleans, Oakland and East St. Louis could benefit from more Urban Rail, mainly streetcars and Light Rail, but cannot afford even 10% matching funds.  Two of these cities, Washington DC and New Orleans, are of national significance and international stature.

DC DOT has a plan for 40 miles of streetcars in the District and the author helped develop a 35 mile plan for streetcars in New Orleans.  It would benefit the nation as a whole (in reduced gasoline use, international exposure and as a learning tool for other cities) to fully fund streetcar systems in these cities.  One goal of such a program, which the author has worked extensively on, is reducing the cost of building streetcar lines.

The author has also written a supplement to the DoE /Hirsch Report on Planning for Peak Oil that covers a vital point that his group overlooked.  It is available at:


Sometimes good public policy is good politics.  Reducing US oil consumption, reducing greenhouse gases, improving the US economy, reducing congestion, providing transportation alternatives and reducing the number of 18 wheel trucks on the highways should be both good public policy and good politics !

Best Hopes,

Alan Drake
1320 St. Andrew
New Orleans, LA 70130


I certainly agree with your proposals.  One suggestion I would make is to address where the electricity is going to come from.  From everything I've read, it sounds as though the transmissions grid is already borderline and then there is the major issue of generation itself and the fuel it will use.

Your proposal also enwakend a sore point with me about the future.  This is a little OT but I may as well mention it.  It seems that just about all articles/suggestions about the future are merely work-arounds to maintain the old comsumer paradigm.  In other words, where are the Ecotopian writings that might lead to demonstration projects?  Given the difficulty getting the sheeple to even acknowledge peak energy, it seems to me that it will be almost insurmountable to get society to change course without being able to actually see the future.  Yet, this will be a necessity as resources decline and population increases.

Just a quick note before I go out the door (late already for JazzFest, the sacrifices I must make to save the world {sigh} :^P

Overall electricity use in US is close to 13 Quads (EIA #). .03 Quad goes for transportation electricity today (2004)  That covers NYC subway, BART, DC Metro, every light rail in country, golf carts AND Amtrak's NorthEast Corridor.

The efficiency gain from electrification is so great that it can fit into the current system easily. The annual growth projections for electricity use can fit electrification of transportation in as well.  A recession will slow growth enough, or improved conservation (my retrofit of a 5 story building provided much of the electricity needed for the Canal Streetcar Line).

I kept my steps down to 2 pages, and I tried to appeal to the "practical" side.  The only mention of Peak Oil was my addendum to Hirsch's paper (very oblique way to get it accross for those that dig deeper).  Also I mentioned that "more than half of DC Metro's gasoline savings came from changes in development patterns".  VERY non-threatening to the "American Way of Life" (although "the other TOD" Transportation Orientated Development, is a different way of life).

This is NOT a purist paper, it is an appeal for a change in federal policy ASAP.  I contradict nothing that I believe in, but I do NOT require that others believe as I do to support the policy changes.  

Coalition building requires a broad tent.  I welcome those that want to electrify our freight railroads and build Light Rail so that they will have to contend with fewer 18 wheelers and "others" as they drive their Hummer to work from their McMansion in the far exurbs.  Their votes count to in a democracy.

Thanks Alan.  I have a much better understanding of your goal.

I'm running around too.  Our weather has suddenly changed from winter (4-5" of snow three weeks ago) to summer(77 degrees yesterday) and I'm trying to get the garden planted, the bees coming to the fruit trees and kill the weeds in the grapes.  Well, back to work.

Rhythm saved the world. Rnjoy that jazz.
Hello AlanfromBigEasy,

Kudos, very well done! Send it to the railroad companies, railroad equipment manufacturers, politicians, wealthy people, and the MSM.  Microsoft dropped 5% friday, costing Bill Gates a few billion--He may be soon looking to postPeak invest his wealth where it has a chance to grow, and railroads and mass-transit seems like an obvious place to stem his losses.

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

My local paper this morning published an editorial by Thomas Friedman about oil. Though I have not always agreed with everything he says, this one is spot-on. MSM, meet peak oil!

The NYT article was behind a paywall, but there are papers commenting on it all over the place:
and here:
and here:

Original (paywall version) is here:
http://select.nytimes.com/2006/04/28/opinion/28friedman.html?n=Top%2fOpinion%2fEditorials%20and%20Op %2dEd%2fOp%2dEd%2fColumnists%2fThomas%20L%20Friedman

Dang, I should look more carefully at the results of my google searches. Not all those folks actually agree with Friedman. Or have a clue. And I could have trimmed the NYT link, everything after the '?' is not needed.

But congrats on the nice new look, Super G!


Thomas Friedman editorial made it into our little newspaper locally too. Two things I took away from it. Friedman is very frustrated over the course of the Bush govt., and the inaction for the first five years of his regime. Second, the call for a new 3rd Party that would be Geo-Green in 2008.

Traditionally third parties in the USA simply do not work. I think his frustration has impacted his thinking.

Right now the majority of America can not see past the high price of gasoline. They are not ready to see the big picture of GHG/PO. The education process is very preliminary.

Friedman also appealed to economics stating that alternative fuels would take off. Most of the Financial talking heads on Bloomberg would agree. Even our controversial PACIFIC ETHANOL just got a 25% financial stake from Bill Gates.

PS CNN had a Hummer vs. Prius segment this morning in Southern California. The Hummer driver, a woman, had been egged four times. The Greens are not going to win her over with that tactic! The Prius driver who was interviewed commented that big SUVs drive up behind her and try to intimidate her, though I have never had that happen in our Prius. There was resentment too, over hybrids getting to go in the diamond lanes on the freeways. One guy complaining was spouting off on his "$60,000" Escalade as if the fact that he spent that much on his ride he should get the privledge of driving in the diamond lane.

Funny world - glad I don't live in the city.

That woman could have been lying. She could have had her home-schooled kids do the deed.

"listen Billy and Jeffy, I have a new game for you, go get some eggs and throw them at mommy's big car"

They like to play the game of projection, you see. Claiming to be a "victim" when they are actually the perps.

jaybus, we get our mailbox baseball-batted regularly. Does that mean that the Posse Commitatus is after us for using government services?

There is a bill in California to potentially allow hybrids the ability to drive in HOV. If you were to listen to nutjobs like LA radio's Hugh "spew" Hewitt, you would think it was the end of the world to them if this were to happen.  

Hello Jack Greene,

The $60,000 Escalade guy was a pretty sad commentary on our society.  Everyone needs to picture living with ever-decreasing 'energy slaves' to do our bidding.

The American auto manufacturers are missing a golden opportunity to keep their workers employed by leapfrogging the Japanese in building super-efficient transportation and bicycles.  The Big Three should be lobbying the Govt to build railroad, mass-transit, and bicycle infrastructure where they will gear up for the manufacturing effort.  The Big Three, in the interim, could be building scooters, motorcycles, and this super-efficient car I found on Yahoo:


Most Americans, that are unfit to pedal a bicycle very far, can easily buy a small scooter to bridge the longer distances until their physical stamina levels rise.  Then they can save the investment in their large vehicles for bad weather days or when the entire family needs to go someplace together.

This is a peaceful method of adaption to using fewer energy slaves in a city with poor mass-transit, like Phx.  I fear postPeak gas prices will accelerate faster than local govts ability to purchase mass-transit leaving many people unable to get on overcrowded buses.  We don't need people fighting for a place in a busline, or fighting for a spot in a gasline to fuel their autos [as occurred in the '70s].

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

i had a jeep cherokee come up and ride my bumper today, as i was coasting down to a red light.  of couse it passes me (girl w/ a strarbucks glaring) on the right when a 3rd lane openned up on that side.  we then proceed to wait, both of us, for the green.  i wonder if it registered at all to those people that there was a red light like 10 car lenghts ahead?
They never do figure out such things, do they?  

My wife and I ran some errands today, and I think the woman tailgating me at 40MPH in a 40MPH zone must have been related to your friend in the jeep.  She followed me at about half a car length for a mile, then passed me, floored it for about 50 yards, and--you guessed it--cut back into the right hand lane and made an immediate right turn.  

Eventually most of them will get the message that driving more sensibly is in their own best interest.  If not, they'll pay through the gas station nozzle for it.


You live in Wichita?

Small world.

Austin, actually. But the local paper's website also requires a sign-in, so I did a search for for the unobstructed column.

What I take as important is that Friedman says gasoline should cost more, not less. He says it should be $4/gal, which is a start. I agree with Westexas that it should be >$5. But at least it's a MSM mention of the idea.

John Tierny also has a call for a gas tax in the NY Times - Fiddling While the Fuel Burns (paid subscription required).

Perhaps he is getting worried about losing his $5,000 bet with Matt Simmons?


Was this covered before because it has some information I was not aware of.. Some very good question ask too..

National energy conversation getting louder        PDF         Print         E-mail
Written by Jan Lundberg  

That's conversation, not conservation. We'll get the latter only if (1) we have the real conversation or (2) we get hit over the head with heavy pre-petrocollapse warnings. I'm glad to say that it's not just the second factor shaping up.

 "What is the role of the market in shaping the reaction to supply shortage from peaking? These studies on peak oil have not taken the market into account." Because I did not specify the oil market, the answers were more about the free market in general including the stock market. Congressman Bartlett's position is that the free market will not be able provide more supply when depletion is setting in. He quoted Donald Rumsfeld regarding peak oil: "The market will fix it." "As if," Bartlett continued, "there are infinite resources. It will be a bumpy ride to a transition, including a crash." Hirsch pointed out that in 1973 the Arab Oil Embargo people panicked. He also said that there have been forecasts of oil running out long ago, but "this time it is not crying wolf" although peaking does not mean actually running out, as he said at the outset. Bartlett pointed out that in the story of the Little Boy Who Cried Wolf, "in the end the wolf came and ate the people."

Bartlett's message is tremendously logical and moral: Don't try to fulfill rising demand to cope with peak oil via supply solutions because this would mean "more greenhouse gases" and just increasing our future vulnerability to a greater supply crunch: "A bigger fall later. We pigged out. Filling the gap (with supply) is intending to further pig out."

Gas prices around here went down a couple of cents on Thursday, only to spike up again on Friday.  The Mobil station across the street is now charging $3.16!  (It was $3.08 for several days, then $3.06 briefly.)

Then there's "line at the recyling machines" measure.  We have a five cent deposit on cans and bottles.  Grocery stores have machines that take the empties back, read the bar code, then issue you a receipt which you can exchange for cash at the checkout.  I shop early Saturday morning, to avoid crowds and traffic, and usually there are very few other customers, and no one using the recycling machines.

Lately, though, I've been seeing more and more people at the recycling machines.  Not just people using them, but people waiting.  Maybe two or three times a year, there are so many people waiting that I don't bother, and put my empties back in the car for next week.  I've done that two weeks in a row now.  This morning, the line was immense.  Lots of people with shopping carts and garbage bags full of empties, some of them getting quite testy.  

Early in the morning is of course when all the old folks are out and about.  Lots of people on fixed incomes.  Getting gas money from bottle returns, maybe?

The average out here (orange county california) is just about touching $3.25
Great work everybody.

Hold your nose and check this out if you wish:  Fox 'News' on PO


Right, it's all the fault of the ME for not giving us "our" oil fast enough. <sigh>

against stupidity the gods themselves contend in vain
Why hold my nose?  Surprisingly, this piece does not smell bad at all.
You're right.

The above-cited FOX News article was relatively good.  How often are Hirsch and Hubbert referenced in the MSM?  

Just the idea of my 'click' increasing Fox's web-ad revenue is what stinks.

If I took more time I could pass along the salient points and then no one would have to look at FOX.

It's not really a Fox article.  It's syndicated.  
wow ... even Fox News seems to be saying, "Um, guys? Yeah. There may be a problem, not even fixable by drilling in ANWR. No, really -- there's a chance. Might even need to, you know, work on conservation or something. I'm just saying ... "

When the neocons mouthpiece goes and has this kind of story, something big's up.

But we already knew that.

Congratulations, I will definitely listen if I can snag a post-show mp3.

Speaking of mp3s, I am listening now to the recent joint talk by Rep. Roscoe Bartlett and Dr. Robert Hirsch, the top item on this EnergyBulletin page:


It rocks, and blows my mind.  It's been a while since a peak oil presentation did that for me, jaded TOD reader that I am ...

I am surprised by the pessimism that comes through Hirsch's verbal comments.  And I am surprised by the good grounding in science that comes through Bartlett's talk.

I think I've been listening to talks by Bartlett and others which were pitched at a more general audience (congressmen), and maybe haven't heard him open up with facts and figures like he does here.

He also hits one of my old themes, one that maybe I should return to in face of PO fear ... that happiness varies around the world, and that people who burn less oil per capita can be as happy as we are now ... or even happier.

Best wishes.

You're right, this Hirsch talk is very good. I should warn people that this is a large mp3 download but worth the effort if you can get it. I've never heard Hirsch talk before--it's quite impressive as a general introduction to peak oil and his report.

It's a shame we can't see the slide set he is using for his talk.

I have the slide show - tell me how to post it and i will.
Well, if it's just a link, use the following syntax along with an HTML formatted post.

<a href="X" target="_blank">The Title</a>

where X is the url.

The slides would be great, the mp3 seems to be really good but the presentation would be much easier to follow if we would have the slides also.

You could upload the slides to some free hosting service like
www.rapidshare.de The service is very easy to use, just follow the instructions on the page and the post the link here.

Ok, I uploaded the PowerPoint to rapidshare. Link here
You are brave but insane to go on that Northern Alliance radio show.  I make it a habit to listen to it every Saturday while out running to get my "hatebuzz" on. It looks like you will get tag-teamed and stomped on by Captain Ed from Captains's Cubicle and foam-at-the-mouth Mitch Berg and King, an economics professor the sad-sack St.Cloud State "university".

Hints: the Captain Ed fellow spouts all sorts of information, fluster him by mentioning Patrick Henry under your breath. If you really want to get them upset then repeat several times over that Air America Radio has taken to talking about oil depletion ALL THE TIME. They, especially Mitch Berg, will blow a gasket over that mention. Or else mention something snarky about home schooling, as they did a live remote from the Minnesota Christian Home Schooling conference last week (!?!).  That is the level of the discourse and their intended audience. It is all lies, projection, and framing they spout; i.e. what I prefer to call entertainment.

Remember that these cretins NEVER, EVER mention peak oil. Too bad you will miss confronting the AssMissile lawyer from PowerLine. I just did another count and once again Powerline has yet to mention Peak Oil in 3 years of blogging. Last count they have 32 posts on "oil for food" but ZERO for "peak oil".  

Forget about Hamilton, it is the radio hosts that will spin everything.  Like I said, they are veritable ciphers on these issues, but if King is on, he will likely try to spin straight economic theory, as in as oil price goes up, then alternatives will kick in.  That is the most I have ever heard them talk about the issue.

With that said, I will be sure to listen.  

Spoken as a true coward, and one who would never call the show at the risk of getting shouted down, I bow to your insane courage,
   sincerely, WHT

HO, The radio guys are apparently getting primed for your appearance. The AssMissile said this:
"Democrats know absolutely no nothing about economics"

"The only thing that makes sense is to open up ANWR for drilling".

and this long rant (paraphrasing):
"The conspiracy is being carried out by the government. If they got together and made laws to prevent exploration in ANWR, they can continue to prop up the price. That would be a violation of the Sherman Act. And this conspiracy is being carried out by congress."


"What is it about boycotting Exxon. What are people going to do, ride around on bicycles?"

Unbelievable. Like I said this radio show is a hornet's nest, and hornets are mean and nasty because they have pea-sized brains.  Jab a stick into it, HO.

How could I forget, you have to mention Jimmy Carter. Watch the radio guys completely melt down if you discuss Ronald Reagan's first presidential action of pulling down the solar panels from the White House.
The problem with those solar panels was the cost. It was ridiculously expensive to heat the swimming pool if I recall. Govt. boondoggle was the impression it left.

Carter had the right idea but he executed it badly. Over 90% of his newly created Energy Dept. budget went to non-renewables.

Do you know what leadership means? A lot of the things that a president does is simply symbolic.

You can say the same thing about the time that Carter partially collapsed after competing in a 10K run. Do want to say that Carter "executed it badly"?  Or do you want to say that Carter was trying to set an example for people to get off their butts?

In comparison, look at Bush's leadership. The guy can barely even talk, and for all the time he goes mountain biking, nothing even registers with the public. Can you imagine the symbolic gesture that Bush can make by just riding from one place to another on Capitol Hill, instead of using his presidential power to cordone off a nature preserve to satisfy his ego, and get a few miles in before executing his ceremonial face plant?


Sure symbolism is important - part of the job, the ol' bully pulpit. We saw a lot of that this past week with political leaders getting into Prius cars and than getting out of them into idling SUVs!

Carter was a failure. I contrast that with Sweden where they woke up in the 1970's with the first oil blip and responded by cutting oil imports for energy back then and continuing it forward. I would include Brazil and their movement to embrace ethanol as anotehr positive example. Denmark's energy policies also stand out.

The sad thing is Carter had a clue, but did not execute it properly. Since then, all the Presidents have been failures on energy policy.

Like Sweden, we have to move in a progressive direction, not what marked the lost years of the Reagan revolution.
The Energy Department was really a part of the Defence Department. Most of the budget went to tritium, deuterium, and plutonium production. Then they had subsidized coal to gas plants, then they had nuclear R+D, and the only solar cell funds they had were a secret subsidy for the electronics industry.
The way the "solar power" scam worked was that bad wafers, silicon wafers that weren't good enough for chips, were used for making solar cells. Good wafers were 100$ and bad wafers were 1$. The government wanted to subsidize our electronics industry against the Japanese electronics industry so they bought up all the bad wafers and used them for building a central station solar power plant that didn't use concentrators. It was just a big collection of solar panels. Absurd.
That was the so called Energy Department.
Hello TODers,

I heartily recommend everybody read Mike Ruppert's speech, "The Paradigm is the Enemy" from the conference:


I also encourage everyone to read Matt Savinar's LATOC weblog for his speech notes.

If the 'Paradigm is the Enemy': then a national effort of growing a 'No Thanks--I like Empty Tanks' mindset needs to reach every segment of society from the richest to the very weak, poor, and sick.

The Post Carbon Institute is to be congratulated for their efforts at creating 90 groups working on Powerdown options. Leveraging what detritus wealth they can to build biosolar habitats is the best path ahead to minimizing the inevitable Dieoff.  Hopefully, as we go postPeak, these now isolated outposts can greatly expand their geographies along the path that Jeff Vail's EnergyBulletin article suggests.  The Govts, at every level, should be passing legislation to accelerate this logical and peaceful direction of incorporating detritus entropy and Jevon's Paradox to bootstrap a new biosolar paradigm.  My previous postings briefly explained possible financing paths.

I sincerely believe it is essential that the addicts become isolated and constrained from over-running the biosolars; sustainable 'land lifeboats' can only hold so many people. The biosolars must live unmolested so that they can learn and research the best methods to maximize biodiversity, permaculture, and pure biosolar energy options.  Otherwise, we can expect all kinds of mayhem and a rapid decline.  My earlier postings detailing Earthmarine buffer zones can be easily setup by governors authorizing their respective states' National Guard to protect these biosolar areas.

The stark contrasts created by these two competing paradigms will create a tremendous impetus among the addicts to conserve as much as possible, and the choking of detritus production will force this effort.  If Russia can collapse without a civil war [see Dmitry Orlov's writings again], then proactive measures undertaken in the US can do the same.

Bob Shaw in Phx,Az  Are Humans Smarter than Yeast?

Tough Times Ahead for Energy

Matthew R. Simmons, Chairman, Simmons & Company, Int'l
Interviewed on the Financial Sense Newshour Saturday Broadcast, April 29

"What we can't afford the luxury of is creating a whole new suite of energy products that are net energy losers."

   In reading through the various expert explanations of what's happening with oil, it struck me the other day that the explainers seem to be easily divided into two groups and that these two groups seem to be almost mutually exclusive in their approach. This fact in and of itself goes a long way toward showing what's happening.
   The first group is what I'll call the Office Holder/Market Yuppy types (the OH MYs for short). They look at the run-up in oil with alarm and confusion, take a few stats and fashion the speculation explanation.  You've heard this - it's a round of hedge fund excess, it's a huge fear premium that will go away, inventories are at 5 year highs so it's not a supply or "peak oil" thing. This group tends to be the star market analysts at the big companies who look at the problem with traditional market mechanics as their only guiding light. The OH MYs also include the politicians who want a soothing explanation for their alarmed constituency. But the selective stats they grab showing why high oil will pass can be better used to explain why high oil will go higher. For example, they say the climb in oil this year is just the greater odds of war with Iran, inventories are high. But the oddsmakers at Tradesports.com actually have the contract for a U.S. and/or Israeli strike on Iran by March '07 drifting lower all year. More significantly, they harp on the inventory thing. Crude inventories are building and at multi-year highs - no supply problem. But what does that really mean? There is no official way of tabulating it, but there is much evidence and historical precedence saying it's hoarding of oil, both official and unofficial, that is raising inventory, and that this started about two years ago. This is a much more fundamental reason for upward price pressure than hedge funds playing around. In this article from 8/31/04, they state, "Evidence is mounting that China is buying more oil than it consumes, raising fears that oil hoarding may be supporting the current high price of crude." India appears to be doing the same. But they suggest that this is a passing speculation that is holding oil up in the $40s and that oil will back to $30 soon. And from 8/23/04, Michael Rothman, Senior Energy Market Specialist, Merrill Lynch answered some questions about hedge funds and oil:"Now, the interesting thing is that when you look at the most recent run-up in the price of crude, the rally that started ... at $35 to, really, $50 as the print goes last week - you did not see a huge increase in the net long position of non-commercials (hedge funds). So the thing about blaming speculators for the run-up is not something the data really supports ... The speculation right now seems to be more on the part of people buying physical oil and scrambling to buy that oil to stick it in storage ... Unfortunately, there is no data that you can look at, weekly or monthly, to truly assess it." But he too predicted in the above cited 8/31/04 article that this is a passing thing:"It appears to be a hoarding phenomenon and we think it has to run its course, and when it does pass, prices should gravitate much lower, somewhere down towards $30." So, while some of the more informed OH MYs conclude a somewhat fundamental reason for climbing oil in '04, they do the typical OH MY thing and chalk it up to insignificant speculation with no staying power.
   The rising inventories along with rising prices is nothing new. As Rothman pointed out, it happened in the '70s and can be clearly seen on a chart of the "official hoarding" of oil, the SPR plus commercial inventories:

The strong '70s run in oil price soon dragged the inventories way up also. The same thing is happening now but in a much more muted way so far, suggesting that, since this time we ain't gonna get bailed out by a rush of new crude from Saudi Arabia, Mars, or anywhere, it may be a more or less permanent thing. It's interesting that the OH MYs dote on the inventories-at-multi-year-highs thing when, as the above chart shows, that isn't saying much. Inventories have been flat at dreadfully low levels for more than 5 years. And some of the current feeble "build" is just refiners being down for awhile. Official hoarding has always been a normal reaction to supply concerns, as the chart shows. In the past cases of supply concern and price rise, it looked pretty easy to go into the global export market and stock up on oil. But in the current monster price run-up, it looks to be much more difficult to grab much extra oil in the market. A serious bidding war for unhoarded oil may be developing. This change is what you would expect to see at or near global peak. President Bush has now ordered a halt of SPR filling, though he would like to fill it more, as a small gesture of price concern ("every little bit helps" he said). The OECD chart shows this same pattern globally. If history is any guide, we've only seen the beginning of hoarding.
   If there is any one unifying theme among the OH MYs, it is their incredibly numb skull track record of getting it wrong on their market calls. For example, Matein Khaild, a market maven (menafin.com) made a prediction on 6/19/05 when oil had stayed in the $40s long enough to create the buzz about "will oil hit $60?". He told us, "Note that the smart money on Wall Street does not buy the $60 oil hype. Why else are the shares of Chevron and BP, Exxon or Total priced at $30 crude?" Circular logic maybe. He refers to the '04/early '05 run-up to threaten $60 as a bubble in the past tense that he is now doing a post mortem on: "The oil bubble was triggered by speculators and hedge funds ... hedge fund speculation in oil futures has gone ballistic." His call in 6/05 with oil in the $40s? "A total market collapse - the crash in crude is, I believe, months away ... My call? A bear market in crude oil and North Sea Brent trades below $20." Another bad call - in '04, the Saudi foreign affairs advisor said that it was nothing but "massive speculation" that was holding up the price of oil (in the $40s). I've already covered Michael Rothman's bum call above. In August '05, Steve Forbes said that oil had been driven by speculation; and that within a year, it would be back to $35. He has 3 months for oil to go from $70 to $35. He has explained his prediction as being based on the simple commodity cycle of high prices bringing on a rushing flood of new supply as it always does - as if we're talking about a soybean cycle instead of Hubbert's peak.
   The other group of explainers of oil are what I'll call the M.Hubbert Independent Nonaffiliated Deducer types (the MINDs for short). My Webster's defines "deduce" as meaning "to trace the course of ... to infer from a general principle." That well describes the approach of Deffeyes, Hubbert, Campbell, Simmons, and all those who trace the course of oil extraction by the geophysical principles involved. In sharp contrast to the track record of the OH MYs, the MINDs were writing books and articles in '97-'01 warning of a crude shortage and permanent price climb when oil was at $18 and they were the only ones on the planet concerned about prices. These two explainer groups seem to be almost mutually exclusive with a natural antagonism to each other. The office holders (or seekers, in Forbes' case) turn a blind eye (or perhaps lame brain) to Hubbertarian principles and listen to the Saudis or anyone that will lie to them. Deffeyes probably doesn't know a futures derivative from a triple expiration and would be a sure bet to lose a presidential election. Hubbert was a big wig at a big oil company. But when he went to present his prediction in 1956 that U.S. oil production would peak and decline in the early '70s, his boss at Shell was on the phone forbidding him to present it to the very day of the presentation (which wound up being partially censored). The entire industry was against him untill years after his forecast turned out to be correct. You have here two plainly different models of explanation of oil - one that very consistently predicts wrong and one that very consistently predicts right. Hmmmm - I wonder which model is right? The next time someone is explaining oil to you, and you are wondering if you should believe them; instead of point/counterpointing them on everything, it might be more instructive to simply ask yourself this question. Which type of explainer are they?

net find, interesting comments - and the fact you know about tradesports tells me something about you. Incidentally, that contract dealing with whether we have war with Iran is incredibly thin, so more a barmoeter of people playing aournd', though its better than nothing.

You picked some hedge fund examples and mentioned some Hubbert peak proponents. Truth is, at any given price, the aggregate dollar vote is normally distributed around that price. So now, with oil at $72 - there are lots of smart people betting it will go to $50 and an equivalent number expecting it to go to $95 (or a smaller number expecting it to go to $300,etc).

So all day everyday there are hundreds of thousands of people who are wrong and a large number also who are right. What youve basically pointed out is that, at least in the past 2 years, the ones calling for lower prices were wrong.

What will be interesting, is that if peak oil causes a global recession/depression, as I expect it will, crude prices will paradoxically decline precipitously, even though we have less left, due to the fact that the contracts are priced at the marginal barrel of demand. That is of course, unless everyone believes in PO by that point and the rich people hoard the oil even in face of depression.

I think otherwise however, and think we have a peak-to-trough drop of 50% in oil coming in the next few years...(perhaps $200 to $100?....we'll see)

Two reasons why I stay the heck away from the oil majors:

  1.  They're sitting on a depleting pile of resources.  I value them like I value mining stocks; against the projected value of their reserves.
  2.  Windfall profit tax is likely to happen in some form or another.
I need a little help understanding an argument of the cornucopians.   They say the Hubbert graph of oil discovery history is misleading because of the huge volumes of increased reserve estimates from existing fields.  I keep reading the CERA quote that between 1995 and 2003, global oil consumption was 236 billion barrels, but during those years there was a reserve increase of 175 billion barrels on top of discoveries of 138 billion, thus increasing global reserves, not decreasing them.  

Clearly CERA is correct in pointing out that SEC mandated reserve calculations undercount real recoverable reserves because technology has improved and prices increase, both serving to add to recoverables on a consistent basis.

The Ronald Bailey piece in reasononline (wish I knew how to input a click-on reference) seems convincing on the topic that reserves are increasing, not decreasing as time goes on.   He says the real problem short term in not geology but politics.  That the oil is in unstable and venal hands, not in those of businesses who will produce along a supply/demand curve.  

What's the reality on this?   Thanks.

I think it all comes down to what we mean by "short term."  No one with an IQ above that of cottage cheese thinks that we can consume oil at ever-increasing rates forever; eventually geology has the last word.  The only question is when this will happen--in 5 years, 15, 50, or 100?

It's definitely true that as the market price rises we extract oil from places where we wouldn't normally bother; $75/barrel buys a hell of a lot more deep water, arctic, and enhanced recovery hardware than does $30/barrel.  So for a while we will deifnitely see a slight shift in where the oil comes from.  We'll also see a shift toward using more heavy, sour crude (like the huge reserves of Venezuela), which will necessitate new or updated refineries.

But how long can this last?  Obviously not forever, and even while it does last it means that the new oil coming to market is pushing up the overall price of the crude as well as refined products.  This is why I still contend that while the Hubbert curve works beautifully for individual exporting countries it won't work for the world as a whole, because it doesn't take into account the effect of higher prices spurring conservation and greater use of non-conventional reserves.

The problem with the cornucopians is convincing them that this time things really are different, and that it's not just another case of crazy people and pessimists acting like Chicken Little.  Personally, I believe that this time things are different, and that we're either on or very close to the ultimate worldwide oil production plateau.  

Hello LouGrinzo,

I agree, therefore everyone needs to take the Hirsch report to heart and start biosolar habitat mitigation.  Recall the quote from Mike Ruppert's latest speech of Dutch economist Martin Van Mourik who told the Paris ASPO Conference in 2003, "It may not be profitable to slow decline."  Even this smacks fast-crash scenario of the 'Nuke their Ass--I want Gas' mindset as Martin is still thinking in terms of infinite growth and detritus-driven profits.  This attitude will only further result in elite wealth consolidation, continued environmental degradation, further pop. Overshoot, and unfathomable levels of violence.

A proactive slow detritus decline optimizes biosolar growth opportunities to minimize violence and encourage vast community cooperative behaviors.  It optimizes the squeeze through the Dieoff Bottleneck.

Bob Shaw in Phx,AZ  Are Humans Smarter than  Yeast?

I think everyone is in agreement on long term.  Yes geology wins.  The whole game among the Hubbertians vs. the CERA guys is when it peaks - next few years or in 30 years.  So the CERA guys say that one of our arguments, that discoveries peaked in '65, is B.S.   They say global reserves (which is what discoveries are all about) have been increasing, not decreasing because of expanded reserves in existing fields due to new technologies and pricing (for the S.E.C. definition of "recoverable").   That's the argument I am seeking a counter for.  Or is it just a fact that the CERA guys have a good point here?   And if so, what does that say about probabilities of a short term peak?
Those Ay-rabs sure are venal. Not like Americans with their sublime indifference to filthy lucre.
Like a magic act, it's better if you hide all the sleight-of-hand as the filthy lucre disappears.
I agree that geopolitical supply limits will trump geological ones in the short term, and by short term I'm thinking probably 5, maybe 10 years.  But don't think the two aren't related.  We wouldn't need Iraq's oil if we hadn't already depleted what was convenient to us.

Enhanced oil recovery techniques have been aggressively researched and applied for over 30 years now.  What CERA doesn't say is that what was easy and cheap to apply has already been applied, and we will have to spend much more to squeeze out smaller and smaller quanties out of those old fields.  EOR buys us a little time but won't change the outcome.

Another topic that Lynch and CERA don't like to talk about is the decline of EROEI over time that mitigates against the growth in URR due to rising energy prices.  Naturally you consume high EROEI resources first; increasingly the cost of recovering what is left tracks with energy prices, so price hikes don't bring as much new reserves to the table as you might think.

When those who are most optimistic about supply talk about how spending billions to squeeze a couple more percent out of long depleted fields and how low EROEI deposits like tar sands and ultra heavy oil will be our salvation, the game is pretty near up.

I'm skeptical that EROEI is so vital.  Not all btu's are of equal value, as shown by recent slide of natural gas vs. rise of oil.  The oil sands equation is pretty much that you put gas in and get oil out.  If we really had lots of gas (certainly not a good long term assumption) and not enough oil, the btu's don't matter so much.  If the ratio of gas/oil reverses a lot, there are ways to burn the bitumen itself to supply the needed btu inputs.  Much more capital, but the net energy output would be way high, and that's for oil sands that you say has a bad EROEI.

A better but more hypothetical example, since it hasn't happened yet, would be using solar to get oil from oil shale.   Some day that may be a very useful exchange of btu's.  Potentially solar can become much cheaper long term while oil should get much more expensive long term.   You could have an EROEI of less than 1 and still want to exchange solar for oil.

So, getting back to the bad EROEI profile of newer finds, I'm not convinced.   I think you have to go to dollars.  The cost of newer conventional finds in deep waters or northern latitudes may be in the $30 - $50 range, necessitating current prices or higher for marginal finds.  But the input is not so much btu's as capital and labor. That is an argument that makes more sense to me than the EROEI one.

Venezula has a lot of "bitumen" of somewhat higher quality than Canada AFAIK (which is not saying much).  They use heat to extract their "goo".

They also have much better solar possibilities (even with cloud cover) AND soem very large hydro projects. Guri was world's largest soem years ago, they recently opened up a ~2,000 MW hydropower plant (from memory), etc.

They currently make a lot of aluminum from the hydropower.

I wonder if a solar preheat and then electric heat pump (using solar pre heated water) and finally electric resistance heat could make "renewable" steam to use to extract their very heavy oil.

Less aluminum, more oil from an expanded hydropower system (still not built out completely).

So, getting back to the bad EROEI profile of newer finds, I'm not convinced.   I think you have to go to dollars.

Exactly.  EROEI is a more limited case of the more general formula

  Profit = Revenue - Expenses

The profit formula is always right, regardless of what the EROEI tells you.  Our friend Peter Huber pointed this out in the Forbes column in which he lambasted Hubbert.

I didn't say EROEI was the only consideration, only that it is a factor that shouldn't be ignored.

The profit formula is subject to sudden change, and is highly dependent on your future expectation of prices.

The example of using natural gas with a low $/BTU to produce oil with a higher $/BTU is a very suspect argument.  The natural gas in Alberta is only cheap because it's stranded - no pipeline to a big market.  If the tar sand producers had realized early enough that North American natural gas supplies had peaked or that oil prices would get as high as they are now they would probably have been better off using their produced oil as energy inputs and built a natural gas pipeline to the Midwest parallel to their oil pipeline.  It might even have made economic sense to convert the natural gas to diesel and ship that south.  But at this point a very healthy fraction of that gas is gone and the infrastructure is already in place to use it to heat the tar sands, so that's how the rest of it will be used, and the lost opportunity cost will never be booked.

Natural gas in the US is much cheaper per BTU than oil is right now, but you shouldn't expect that to continue.  The current natural gas price situation is the result of high prices in the Fall that encouraged producers to bring new product to market and a very warm winter that kept demand mild.  As natural gas prices were on the decline here, the $/BTU for natural gas far exceeded that of oil in the UK for a short time last winter for the opposite reasons - declining local supply and higher than expected demand.  The natural gas market is quickly globalizing and we will see a lot more gas to liquids projects coming on line, so you can expect $/BTU for oil and natural gas to get closer over time.

In fact I think there is some value to tracking the relative $/BTU for oil, coal and natural gas and using those numbers to evaluate the long term attractiveness of various large reserve holders.  Long term there are good reasons to expect coal and natural gas prices to follow oil up as they take on a greater share of our energy needs and as the oil share declines.  In the interest of full disclosure, I own shares in a number of tar sand, nat gas and coal producers.

Huber's Forbes article is actually very shabbily thought out and reflects poorly on him; he didn't even bother to learn what EROEI actually meant before penning it.

but the point is that dollar ratios of return fluctuate too much to anticipate the ture long term costs. The eroei should take that into account.

Am I hearing you say that if energy were adjusted for quality then multiplied by its btu to btu eroi that that would make a better measure? Right now electricity , by the Divisia index, is about 3 times the energy quality as oil. so an EROI using electricity as the main output could have an eroi of .33:1 to break even?

Skeptical?  Then let me attempt to push my case a little farther.

My point is that it's a mistake to for CERA or Lynch to say that at a certain price per barrel reserve estimates should go up by a the full size of a field based on decades old or even present estimates of cost/barrel for that field.  That's too simplistic - low ERORI reserves will have a profitability threshold that increases as energy prices rise.  Heavy oil / tar sand / oil shale projects are vastly more capital intensive than conventional oil, and investors in these projects need to see a probable 10% to 20% return per year before they will put their money down.  If I project oil prices will rise from $50/br to $75/br, my cost is $25/br and my ERORI is 100, my projected profit nearly doubles and I'm pretty likely to be very aggressive about ramping up production capacity.  But if my EROEI is only 2 my profit will only go up 50% - in this case I'm less likely to finance a big increase in production, and as I use up the better EROEI reserves first I'm better off packing up and looking for a better return on my investment elsewhere long before the EROEI drops to 1.

It's easier to think about if, as you suggest, you used part of your oil output as the necessary energy input.  If I examined all the tar sands in Canada and thought there were 1 trillion barrels with an EROEI over 1 available, and the average EROEI of that trillion barrel reserve was 2, I really only ought to count that in my global tally as 500 billion barrels, and that is an optimistic assessment because as I said above the return on investment won't be attractive enough for a sensible investor long before the average EROEI drops to 1.

I don't agree with the argument that oil BTUs are worth more than other BTUs, at least not in the long term.  Coal and natural gas prices will not lag behind oil indefinitely in terms of $/BTU.  At some point the economics favor converting coal and natural gas to diesel directly.  As for using solar or nuclear generated electricity to make liquid fuels from oil shale, I doubt that such a practice could be economically compelling for long.  There are much more efficient ways to use electricity for transportation.  The key factors would be the amount you have invested in current infrastructure and how long it's expected to last.  This would limit the harvesting of oil with EROEI less than 1 for transportation fuel to less than 20 yrs, and likely only in very limited amounts.  And we haven't even considered environmental costs.

The amount of undiscovered deep water and artic "conventional" oil reserves are not likely to significantly effect the date of peak oil because the volumes are too small.  How we decide to count the far vaster unconventional reserves and what are realistic production rates are far bigger questions I think.  And an essential bit of information needed to answer these questions is the EROEI distribution of those reserves.  When I see people (not in this forum, of course) argue that peak oil is not a concern for current generations because there are an estimated 8-10 trillion barrels left on the planet I cringe.  It's like saying, here's all the free gas you want, 1 gallon every 50 miles down the road, you just have to drive out to get it in a car that gets 25 miles a gallon.

Here is a graph showing current $/BTU (from Neal Elliot, ACEEE). Electricty is still the highest 'quality' but academic papers (Divisia index) show it to be 3 times as valuable as other fuels (oil and gas). That no longer seems to be the case. Value depends on scarcity. Even if electricity is more versatile and can produce more work with more efficiency, it 50%+ of our society is run by liquid fuels and they are in shortage, they are at that moment, by definition 'higher quality'. Industrial Energy Prices ACEEE
There is one interesting point here.  We frequently plot discoveries as a function of time to demonstrate declines in discoveries.  

When reserves are increased for a field, we typically assign the increase to the original date of the discovery of the field, and not to the date that it was decided that the reserves could be increased.

CERA apparently argues that one should assign the increase to the date at which it was decided to increase the reserves.  The difference between this approach and the backdating approach is important, and can lead to a significant difference in our understanding of what is going on.

I found this paper which discusses the differences:


That IS an interesting point.  Lot of complexity here.  I wonder if there is any double counting of reserves in the CERA numbers, putting expansion numbers in both year of discovery and year of recognition. But I guess that's a different subject.  Though maybe not:  if they are using an 8 year time frame, the same oil could be in the discovery year number (from API or somewhere) as well as the recognition year (their own numbers).
The CERA approach doesn't deserve so polite a name. It's not mere idiosyncrasy, but flat-out evasive mendacity, ingeniously obfuscating the fact that many fewer large fields have been discovered recently.
I thought you said Russian was your first language?
I'm listening to the crackpot King Baniaan ask HO about any gasoline "hordeing" going on. King also sees variations in gas prices and refers to this as "uncertainty".

These radio guys are really clueless. But as St.Cloud State U. is nothing more than a party and Hockey school, I shouldn't expect much more in his economic analysis.

So far HO is doing a fine job.

You sounded great, HO! And I would hardly say it was a head-to-head match—it was more a reasonable discussion among 2 level-headed bloggers.
I agree that it was level-headed. A cold caller would have been tossed out with the same comments.  I expected that HO would get a bit more aggressive.

That's why I think that if you happen to get invited on one of these shows you have to get some good digs in. You can get more of a reprieve, at least for awhile, because you are an invited guest.

In any case, congratulations to HO.  It was the first time that these radio dudes, and probably their audience, have ever even been made aware of the issues.

On the radio show, Hamilton says that peak oil may not be the basis of our current price hike.  He doesn't elaborate and then brings up the possibility of ethanol/biodiesel, and HO nicely confronts him on the fact that the problem is much deeper than that.
Resurgence of the bear?

Don't stand in our way

President Vladimir Putin's seizure of control over Russia's oil and gas sector is now complete. Russia is flexing its muscles to recover its former superpower's swagger on the world stage.

The forum's week came after a threat from Alexei Miller, chief executive of Gazprom: if Europe didn't allow it the access it wants to European gas pipeline and supply companies, Gazprom might divert its European energy supplies to the US and the Far East. On the BBC, Medvedev put it even more clearly: "There are two concepts available - a weak Russia or a strong Russia. There are still people who believe that weak Russia is good for the world. We completely disagree with this. A strong Gazprom is good for the world."

Cliff Kupchan at Eurasia Group, a consultancy that studies the politics of energy told The Business: "In the 20 years I've been doing this, I've never seen Gazprom exert this extent of bullying or political pressure. I could describe the Moscow mindset right now as `Petro-steroid'. They think this is their ticket back to the world stage ... and they may be right."

Mattias Westman, chief executive of Prosperity Capital, a leading Moscow-based investment fund told The Business: "There's never been a company with Gazprom's type of power. Not since the days of Standard Oil anyway and that was a long time ago."
And then there's Rosneft:
Once it has completed what could be the biggest flotation on the London Stock Exchange this year, expected around July, Rosneft, too, aims rapidly to surpass the West's listed oil producers.

Bogdanchikov told the forum in a rare public appearance that he aimed for Rosneft to produce more oil than any other listed company by 2015, with a target production of 3m barrels per day (bpd), surpassing Exxon Mobil's 2.7m bpd.

Even Lukoil, now free from direct Russian state control, has ambitions to surpass BP and Exxon Mobil, targeting 4m barrels worth of oil and gas per day by 2015.

Oh yeah, I thought this was also quite telling (my emphasis):
[Lukoil's] Vice president Andrei Gaidamaka said: "We're like an elephant with wings." He says Exxon will not be able to find the oil it needs to keep its lead. He said: "Where do they find big reserves? I don't think there's a place where they can find more reserves."
100 mile an hour winds and baseball size hail in Texas today and its not even hurricane season.....
I uploaded HO's radio segment to archive.org

I got rid of the middle commercial, so it comes out to 23 minutes and 16 MB in size.

Click here to get MP3

Thank you. I wasn't able to hear the live broadcast.
I've just listened to the Hamilton/HO "debate" and as I said and expected on the very first post on this thread, there was little disagreement about the issues.

HO's remarks were solid throughout.

I think HO emphasizes peak oil a bit more than Hamilton does but there was not any indication that JDH felt that there was any kind of price "bubble" going on here. He knows better than that which is why, I think, most of us here at TOD respect his point of view (he is an economist, after all).

The key point HO made, as many of us have said, is that alternatives (biodiesel, tar sands, Venezuelan heavy crude, CTL, GTL, etc.) are very slow to ramp up. So, we can not expect lower prices in the future. Volatility in the current markets is not perceived correctly by the MSM and conventional authorities. The trend is up and up but displays a see-saw pattern. In particular, I see that after the $75/barrel plus surge last week, prices have settled in the low seventies. This is what I expected. The next time oil prices surge (outside severe oil shocks), they will reach $80/barrel or more and then probably settle back into the mid-seventies. And so forth. This is the pattern we can expect for years to come IMHO.

Highly recommended to anyone who cares to listen.

Your post touches on a detail I keep trying to stress to people in person and through my site: There are really two questions that people are and should be concerned with:

First, will energy be "cheap" again?  (By "cheap" people mean the prices we paid a couple of years ago; I think energy is still cheap, but that's another detail.)  Like virtually everyone here I'm convinced the answer is a resounding "No!"  We can all recite the multiple, interlocking reasons why.

Second, will there be shortages of energy serious enough to trigger "the end of the world as we know it"?  That's another phrase that's open to a wide range of interpretations, but I think the answer is no.  We'll pay more for energy, adjust our lifestyles, drive electric cars, use compact fluorescent (and later, LED and OLED) lighting everywhere, and endure quite a bit of pain as we muddle through the transition and learn to be vastly more energy aware, but we won't see a crash of civilization or even lesser widespread changes, like the death of the suburbs, etc.  

As for the price ratcheting effect you describe, I'm not sure it will be that clear a pattern, even without an external shock to the system.  We could well see prices decline into the 50's before the next major runup.  There are just too many variables involved to make a reasonable guess, in my opinion.

Not trying to be argumentative, Lou, but what mechanisms do you see operating that would get prices back into the $50's?
not to speak for lou, but i think it is all signal and noise.  for us signal is peak oil, and noise is the political and economic factors, along with simple market gyrations.

we can never (ever) be sure what part of $72 is signal and what is noise, but one could guess all kinds of things - that we are +$20 on noise now, or that we are +$10 on noise now and that we might see -$10 in noise later on.

Excellent point.
This is a good point but I'm having trouble believing there's $20/barrel noise in the pricing with demand rising and no spare capacity.
This just came into my inbox from Google. The article is at Raise The Hammer.
At yesterday's Peak Oil presentation to Hamilton City Council, Richard Gilbert mentioned a little-reported event that may mark the day that the earth tipped past its oil production peak.

Amazingly, a search of news reports turned up virtually nothing. I eventually tracked down the original report from Platts Oilgram News: Saudi Aramco announced on April 10, 2006 that Saudi Arabia's mature oilfields "are expected to decline at a gross average rate of 8 percent a year without additional maintenance and drilling."

The Aramco spokesperson explained that the company is attempting to offset those declines with "remedial activities" including drilling new wells in existing fields and opening up new fields.

But get this: the spokesperson went on, "This maintain potential drilling in mature fields combined with a multitude of remedial actions and the development of new fields, with long plateau lives, lowers the composite decline rate of producing fields to around 2 percent."

The last time I checked, a two percent decline is still a decline. If this is correct, then Saudi Arabia may be past its peak in oil production. Saudi Arabia is responsible for approximately one eighth of the world's oil; as Saudi Arabia goes, so goes the world.

Not to sound cynical, but if they're admitting to, in effect, a 2% decline, shouldn't everyone here expect that the real number is just a wee bit higher?
A bit off topic but did I miss something?? from: http://www.raisethehammer.org/blog.asp?id=220

Peak Oil for Saudi Arabia?

At yesterday's Peak Oil presentation to Hamilton City Council, Richard Gilbert mentioned a little-reported event that may mark the day that the earth tipped past its oil production peak.

Amazingly, a search of news reports turned up virtually nothing. I eventually tracked down the original report from Platts Oilgram News: Saudi Aramco announced on April 10, 2006 that Saudi Arabia's mature oilfields "are expected to decline at a gross average rate of 8 percent a year without additional maintenance and drilling."

The Aramco spokesperson explained that the company is attempting to offset those declines with "remedial activities" including drilling new wells in existing fields and opening up new fields.

But get this: the spokesperson went on, "This maintain potential drilling in mature fields combined with a multitude of remedial actions and the development of new fields, with long plateau lives, lowers the composite decline rate of producing fields to around 2 percent."

The last time I checked, a two percent decline is still a decline. If this is correct, then Saudi Arabia may be past its peak in oil production. Saudi Arabia is responsible for approximately one eighth of the world's oil; as Saudi Arabia goes, so goes the world.

Bomb explodes near Nigerian refinery

Militants say blast intended to ward off 'Chinese oil thieves'

Nigerian militants claimed Saturday that they detonate a car bomb outside an oil refinery in Warri.

A Nigerian army spokesman told the French news agency AFP that the blast caused no casualties and only minimal damage.

A group calling itself the Movement for the Emancipation of the Niger Delta said the blast was a warning to companies working in Nigeria's oil fields, especially the Chinese. Chinese President Hu Jintao signed oil deals earlier this week with Nigerian officials during a state visit.

"Our operatives in Delta state in the Niger Delta planted and detonated one car bomb amidst petroleum product bridging tankers located close to the refinery in Warri," the group said in an e-mail sent to news organizations.

"We wish to warn the Chinese government and its oil companies to steer well clear of the Niger Delta. Chinese citizens found in oil installations will be treated as thieves. The Chinese government, by investing in stolen crude, places its citizens in our line of fire," the group said.

To think that "we aint seen nothin yet" in $3/gal gas, I'm concerned about these knee-jerk reacions we're seeing in the news media and in ordinary people already.  The front page of our local paper today had a story about how people are selling their plasma for gas.  Evidently, the waiting room at the blood bank has been crowded lately.  They also interviewed a local pawn shop employee who said many people are coming in to make just a few $s to buy some gas.  I'm also surprised at how little has been said about conservation in all of the "blame somebody else" news stories.  When I biked to my son's high school this week, a school of 1000 students, I noticed how unbike friendly the school is.  There are no decent bike paths to or around it, but man, you should see the size of the parking lot!  It goes on and on.  Yes, the American way, every kid gets a car when they turn 16!  WE are in big trouble.  And, did anyone notice how tired Heli-Ben looked this week???
Great article in tomorrow's NYT about gas prices. It's long. They combined multiple dispatches from around the country.

As Prices Go Up, Impact Trickles Down

On the way home, Mr. Cole used to stop at Wendy's and order the No. 6 combo meal: spicy chicken sandwich, medium Dr. Pepper, medium fries. Now he orders junior hamburgers from the dollar menu.

"It's not a gourmet meal anymore," he says. "French fries are an extravagance now. It makes me angry that I have to change my whole life because of gas prices."