Sorry Tom Friedman, the world gets rounder

"Well, up on the slope, we all know it's real," he told me. "Alaska is screwed." We had an interesting conversation from there

This makes no sense. If Alaska is running out of oil, and Alaska currently makes a lot of money selling oil, the Alaska is indeed "screwed."

But the peak oil folks say that the WORLD is running out of oil. If that were true, then Alaska would benefit greatly, as it would be able to sell its oil at a much higher price. Alaska is only "screwed" if it runs out of oil and the rest of the world does not.

And your point linking peak oil once again to climate change is just as non-sensical as every other time you bring up the two in one breath. Look, if the world runs out of oil then our lifestyle will take a huge hit. Very bad for the economy. But we will also stop generating lots of CO2, so man-made climate change stops. If the world doesn't run out of oil then the economy is just fine, but there's a chance we get seriously nasty cliamte change.

The economy tanking is bad. The ecosystem tanking is bad. But one of the two happening means the other is very, very unlikely. The only reason to feat that both will hit us if if you're, oh, I don't know, tempermentally inclined to revel in disaster porn.

If we screw up the climate, SD, while we still have oil, it will still be screwed up whether we "run out" or not. And at this point, I believe we will screw up the climate and the economy and will run out of *deliveries* of oil way before we ever get the last drop out of the ground.

Rod,

Yes, I get the nuances on both peak oil and climate change. I was being simplistic for clarity's sake. To illustrate the illogic of your double fear.

Alaska is in fact not "screwed" if global peak oil is real. If global peak oil is real then the price of oil will go up a lot in the coming years. As an oil-producing region Alaska will benefit. Which is to say that if Alaska can produce X barrels of oil per year then its much better off selling them at $200 per then at $50 per. As a thought experiment, ask yourself what would hurt the Alaskan oil industry more: Saudi and other cheap oil fields dropping output dramatically, or another super-cheap source of oil being found. If you picked the former then you don't know the first thing about economics.

It makes sense to worry about peak oil and not climate change. It makes sense to worry about climate change and not peak oil. Or it makes sense to worry about neither. All 3 are defensible positions (though of course only one will ultimately be proven "right"). But what you cannot reasonably do is worry that both peak oil and major disruptive climate change will hit.

If global peak oil is real then CO2 emissions will plummet in the coming years. Yes, to the extent that we have already pumped a bunch of CO2 into the atmosphere there may be effects of that. But no resonsible climate scientist believes that we are in for catostrophic disruptions without continued high levels of CO2 emissions.

Very productive day from Rod - great posts. Steven - yes effects - if I understand correctly it is as if the effects of climate change we are experiencing now are a result of greenhouse gases we put into the atmosphere say twenty years ago - so it will be another twenty years before the greenhouse gases we are releasing now will have an effect. So even if we totally stopped putting greenhouse gases into the atmosphere today - it would take say -twenty years for things to clean up - assuming a zillion other variables do not play into it. Does that sound right?

and yeah - Alaska is as screwed as the rest of us are - because if oil goes up to say 200 a barrel - sure - Alaskans make a lot of money but they will have to spend that money to buy 200 a barrel gas - cause Alaskans need lots of heating oil and lots of gas for travel - not exactly a mass transit friendly sort of state and I suspect once winter comes - solar power won't be useful to them. It isn't as if they are going to sell Alaskan oil to Alaskans for 5 a barrel while they sell it for 200 to everyone else.

plus - isn't it a crunchy thing to do for companies to rely more on local suppliers than nine zillion mile away suppliers? So this is good news. Less gas used - conserve what we have - less gas used - less greenhouse gases.

Rod, deny? affirm? Who is doing what?

Recently the largest scientific association in the world - The American Chemical Society furiously denounced the language that goes along with climate change alarmism. They joined the American Physical Society who are calling for the same. I would like to call myself an affirmer in the same category as these scientists.

As other authors have noticed.

The moral prescriptions the majority of climate change proponents offer line up almost perfectly with libido liberalism's pre-existing moral preferences. That means minimal 'lifestyle' (I hate that word with a passion) change for maximum political, cultural, and economic cache.

From a minority of these voices aborting babies is considered good for the atmosphere. Separating recyclables is of higher value than saving unborn lives from separation from their limbs in the womb and eventual incineration.

We see what public personalities do who push climate change policies, next to nothing in terms of personal 'sanctity' yet at the same time position themselves to receive the spoils of what Warren Buffet called 'a massive tax'.

If it wasn't to begin with, it is surely now an ideological movement with the potential to accelerate rapidly the processes of cultural reaction to a pagan ethos. What was good was all you have been speaking about Rod but now "the history of the West is one of the State assimilating every useful institution into itself". Prof. David B Hart

I worry very much for average families (that last institution on the State's radar) who are not well positioned to cope with the increased cost of living from taxes that it is admitted will have negligible empirical effects. It is typical of the self-referential 'good feelings generating' 'help for the sake of helping' policies of metastasized liberalism.

Financial audit please. Congress read those bills.

Rod said, "Last summer, before the crash, remember how tight the oil markets were?"

Considerable research has shown that demand did not cause the spike in oil prices. For example, a 21 page report by Robert McCullough:

http://www.mresearch.com/pdfs/350.pdf

Cantwell blames spikes in oil prices on speculators

The U.S. senator from Washington and Portland economist Robert McCullough analyze recent market volatility
Thursday, August 07, 2008

tinyurl.com/ntz6qn

JULY 28, 2009

Traders Blamed for Oil Spike

CFTC Will Pin '08 Price Surge on Speculators, in a Reversal From Bush Findings

online.wsj.com/article/SB124874574251485689.html

I'm getting tired of the "blame speculators" mantra. Since when did speculation become unwanted in a "free market" culture? And if speculation has been eliminated, who or what do we blame for our current $70 oil? Remember that when Bush 43 invaded Iraq, oil was $19/bbl.

Even if we are at peak or post-peak, there's still a lot of oil in the ground. And oil markets are tighter than anyone wants to admit.

Alaska is in fact not "screwed" if global peak oil is real. If global peak oil is real then the price of oil will go up a lot in the coming years.

Yes, Alaska would be screwed. Alaska is far away from where its food is grown. Almost everything has to be brought in on planes and ships. Alaska's bounty under a peak-oil scenario would also cost the state a lot, because of higher prices on food and everything else. And when the oil finally ran out, the prices would still be high (and going higher), with no oil revenue to pay for it.

There is no single "Peak Oil"; rather, there are countless miniature "peak oils" -- each field has one; so does every basin; every country; every continent; and, yes, eventually the world will have one too.

But this is primarily a function of the all-in cost of oil recovery, including capital investment, taxes & royalties, lifting/extraction/operating costs and transportation. In other words, the question is not whether or not "peak oil" is "real", but at which price level will a given resource no longer be profitable to exploit? There can be no discussion of production, without a discussion of recovery cost; and therefore market price.

This is true at the level of an individual field, and it's also true for every higher level also -- i.e., a given basin or other geographical region.

Up until about a year ago, the global constraint was definitely on the supply side; but it wasn't a geological issue: it was a capacity one. There were no spare rigs, no available drillers, no excess machinery or materials. So if you *did* have access to a rig, you dragged it to the cheapest operating environment you could find: Middle East, and to a lesser extent West Africa. What you didn't do, was try to drill in the Gulf of Mexico any more than you absolutely needed to because of capacity constraints almost else in the world in order to supply the final marginal barrel demanded by refiners. (The Gulf of Mexico is pretty much the highest-cost piece of real estate for oil drilling in the world -- in the biz, it's often called the marginal supplier.)

[As an aside, this is precisely the reason that the "Drill Here, Drill Now" campaign is economically illiterate; though I think that the people pushing it are smart enough to know better -- it's just politics.]

[Further aside: I am slightly oversimplifying, because there are fixed costs involved, existing infrastructure, long-term delivery and supply contracts, and of course political risk. But the point still holds: which fields are drilled is, finally, a function of the all-in costs associated with drilling them. Once those fields are tapped, you move on to the next higher-cost field, only to the minimum extent needed to meet demand increases. All else being equal, this would push the cost-curve upwards, and lead to rising prices. But "all else" is not equal because technology gains are always reducing the per barrel recovery price from a given type of field, inflation adjusted. And of course, the shortage in oil drilling equipment is now reversing itself....think 1980s, with the glut of oil field service companies and huge unused capacity that came about after over-investment in the wake of the 1970s shortages. It was of course these high prices and rising profitability... get this...that led to the subsequent glut in the first place.]

So in any given environment, you may well have a “peak oil” moment, because it is economically preferable to deploy finite capital and other resources to the lowest-cost operating environment.

Consider: Texas is the most over-explored, over-drilled piece of land in the world. It’s been drilled like 100x as much as Saudi Arabia. They still find oil there, but less often, and it’s definitely a depleting asset and production has been falling for years -- down approximately 50 percent from the early 1980s, meaning that Texas hit “peak oil” like 30 years ago. Bad news, right? Well, no, not exactly: you can take any abandoned oil field in Texas, and it will still have 65-75 percent of its original oil still in place. But oil companies guard their capital investments quite carefully, so rather than spending the money to get at that remaining oil, which is expensive, they move on to new fields, where it’s cheaper and easier to drill, and they obviously generate a higher return on investment by doing so. Eventually, if it’s economically profitable ("economic profit" is more than the ability to operate profitably, but to recover the capital cost also) to revist those fields, they’ll do so.

But first: you’ll have to drill up all of the Middle East, Alaska, West Africa, South East Asia to the same degree as West Texas. And don’t forget Russia and the CIS: Russia probably has even greater reserves than Saudi, but the political regime and tax burden hugely constrain their output, in part by design. Then you’ll still have oil sands, tar sands, coal-to-liquid, LNG...

...and by the time that happens, I think that we'll be able to look back on the automobile with a sort of quaint nostalgia. I mean, we didn’t switch from the horse-and-buggy because we ran out of horses, right...? Or clipper ships from lack of wood...

Peak Oil is being blown up as we speak. We are at peak oil when crude is sell in the teens- $35 a barrel. At $55 and up there is whole new level of harder to get oil that totally floods demand. Look at the the deep water Jack Wells in the Gulf of Mexico; 10-15 Billion barrels. This find grows Mexico's potential reserves by 50%. The same in Brazil with a 50% boost to reserves from deep water drilling.

In Alaska, we are "screwed" is a self imposed state, not Peak Oil. Based on GreenPeace's estimates there is more oil under ANWR than EVER existed in Texas, not to mention the potential in the Chukchi Sea.

KM

Cite, please? Greenpeace is not a scientific journal.

The Hubbert Curve is used to predict the rate of production from an oil producing region containing many individual wells. Source: aspoitalia.net

In the 1950s the well known U.S. geologist M. King Hubbert was working for Shell Oil. He noted that oil discoveries graphed over time tended to follow a bell shape curve. He supposed that the rate of oil production would follow a similar curve, now known as the Hubbert Curve (see figure). In 1956 Hubbert predicted that production from the US lower 48 states would peak between 1965 and 1970. Despite efforts from his employer to pressure him into not making his projections public, the notoriously stubborn Hubbert did so anyway. In any case, most people inside and outside the industry quickly dismissed the predictions. As it happens, the US lower 48 oil production did peak in 1970/1. In that year, by definition, US oil producers had never produced as much oil, and Hubbert's predictions were a fading memory. The peak was only acknowledged with the benefit of several years of hindsight.

The notion of peak oil is not particularly controversial anymore in the geological community. (I am a geology major, currently a senior at Guilford College)

Of the 65 largest oil producing countries in the world, up to 54 have passed their peak of production and are now in decline, including the USA in 1970, Indonesia in 1997, Australia in 2000, the UK in 1999, Norway in 2001, and Mexico in 2004. Hubbert's methods, as well as other methodologies, have been used to make various projections about the global oil peak, with results ranging from 'already peaked', to the very optimistic 2035. Many of the official sources of data used to model oil peak such as OPEC figures, oil company reports, and the USGS discovery projections, upon which the international energy agencies base their own reports, can be shown to be frighteningly unreliable. Several notable scientists have attempted independent studies, most famously, Colin Campbell with the Association for the Study of Peak Oil and Gas (ASPO).

http://www.energybulletin.net/primer.php

These market forces work in the other direction as well. In the mid '80s when oil hit the single digits, oil field tech took a tremendous step forward to get crude out of the ground at a lower cost.

None of that changes the fact that the Hubbert Curve has been validated repeatedly. The oil production rate in the United States peaked in 1970 as predicted, and further enhancements of oil recovery technologies merely attenuate the shape of the curve...but you still have a Bell Curve (or Hubbert Curve) at the end of the day.

Celtic ,
My maketforces will trump your curves in the end.

And of course it's common knowledge that the Hittus were screaming "Peak oil is here" as they were hacking off Tutsis arms and legs.
Your chicken little curves don't mean anything at the end of the day. And way to not deal with Ehrich and his doom predictions that were to come to pass by the21st centry failed to materialize. There has been a cottage industry in doom prophecy since thebegging of man. How'd Malthus turn out on his resource scarcity thesis. If u keep. Predicting it long enough it will cone true, a few hundred more years maybe. Oil will be replaced as the cheapest energy source long before we show signs of running low.

No comment on the crude discoveries in the last 5 years that increase the western Hemisphere's known reserves by 20-30%. That's just in the last five years. Get out of the classroom and look what is happening in the real world.

KM

KM is exactly correct.

celtic dragon critter -- you are also correct, to a point. As I wrote above, any given asset base (whether it's a field, or a continent) will reach a peak production point, because it eventually will be cheaper to switch production to a lower-all-in-recovery-cost asset. That indeed happened in North America abut 30 years ago. But it doesn't mean that there's no oil left in NA or that NA is going to "run out of oil": it means that at the prevailing cost curve, it is economically better to exploit other resources first.

So Hubbert has not been refuted, but validated; but his predictions do not show that global production will decline because of a geological shortage, as such.

Remember: there are many cascading "peak oils", all at different price levels, for different assets.

"Manufacturers are abandoning global supply chains for regional ones in a big shift brought about by the financial crisis and climate change concerns, according to executives and analysts."

Showing once again, as those of us in the logisitics business know, that manufacturers don't have a clue about how much it does or should cost to move things from here to there.

There is no cheaper way of moving goods than by water. It costs less to send a container across the Pacific from China to Los Angeles than it does to send it from Los Angeles to Chicago. This is why low value by weight goods are transferred to barge or ship as soon as the most marginally navigible waterway is reached.

There is no more expensive way of moving goods than regional trucking.

If manufacturers are giving up on the China-trade to "save" money on shipping by sourcing production in Mexico, they are in for a rude result.

Thanks Turmarion: I did say these organisations denounced the language Al Gore and public personalities use to push their agenda. The APS statement:

“Emissions of greenhouse gases from human activities are changing the atmosphere in ways that affect the Earth’s climate.”

is measured as the observations demand. I'm critical of the sociological and political abuse of the science.

Paraphrasing Freeman Dyson: coal is cheap, it is the best means of bringing poor people to the middle class. This is one of the great goods of the century. Even if it is not conscious (though to some it would be privately admitted) developing countries and their traditional societies are a threat to the world. So population myths and resource depletion fancies are necessary means to these group's good ends.

Pollution is bad; energy and resource exploitation is bad; fealty to nasty oil producing regimes is bad and therefore energy independence is good. But a lie has the veneer of truth and this very good attention to the environment has now been hijacked.

A similar mechanism happened during the Reformation. It cost alot of blood, and divided nations. We are much more exposed to the violence this politicking could bring than 500 yrs ago.

Slowly slowly please. Financial audits please, paid independent scientific assessments please. This is very dangerous stuff - legislation that taxes every industry and service in the economy and collects massive amounts of revenue and entrusts its redistribution to whom?

The difference between the APS language and Mr Gore's, who stands to make billions from his various investments, is large. But it is Mr Gore's preaching that is affecting the public's thinking most of all.

For those whose skepticism is applied only to orthodox Christianity we sure could use some consistency 'round about now.

Manufacturers are abandoning global supply chains for regional ones...

Really? I see just the opposite happening.

If this does become true, it will not be due to energy costs or global warming. It is much more likely to be driven by this:

http://www.washingtonpost.com/wp-dyn/content/article/2009/08/07/AR2009080702043.html