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Video: The end of oil

Lots of readers seem to be very perturbed about the end of oil. I’m not, particularly. In fact, it would help us deal with environment degradation, which is the real big threat we face.

I’m not blind to how society is driven by oil, from transport to agriculture to the manufacturing of plastics and other artificial products. I just think, so what? The Stone Age didn’t end when we ran out of stones. The end of oil will mean the end of the oil age, not of human civilisation.

Solar power, off-shore tidal power, nuclear, geothermal heating, better insulation: they all may have a role to play, or perhaps we’ll invent something new. A lot of alternative technologies look expensive compared to stuff lying about under the ground, but they’re linearly more expensive, not exponentially more expensive. It’s a solvable problem.

Here’s a smarter man than me, Richard Sears, on future energy:

Darn, I just realized he concludes with my ‘end of stones’ quip. I guess we both read the same witty economists!

Many private investors have invested in oil to a disproportionate degree, convinced that in a peak oil future they’ll be the richest folk in town.

Well, I doubt it – the little exploration companies may well get mopped up by the giants at a good profit, and the giants may diversify into other energy sources, but I don’t think it’s a case of one sector to rule them all.

Also, have they seen Mad Max? Be careful what you wish for!

Do you have a view on the end of oil? Let us know below.

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{ 14 comments… add one }
  • 1 Conrad May 21, 2010, 8:24 pm

    Thanks for the post. I love it when someone provides a little thought provoking content to their readers. Just so you know this post made my top 5 reads for the week. Thanks again,

    Conrad
    .-= Conrad on: Congratulations! =-.

  • 2 ermine May 21, 2010, 11:01 pm

    Oil is also not just an energy source, it is also a metaphor for natural resources and is used to produce materials and artificial fertilisers. The weakest part of the video is the delightful assumption that bright ideas will trump natural limits. They have so far, but as the old saw goes, past results are not neccessarily a guide to future performance. He also asserts natural gas will take over from liquid oil, but last time I looked they tended to be found in similar places.

    As far as I understand it peak oilers don’t claim we will run out of oil, more that after half of the reserves are extracted it becomes uneconomic to extract the rest.

    I’m not sure there’s enough world to give six billion of us a middle class lifestyle, but I sure as hell hope that this guy is right!
    .-= ermine on: The Germans do not appear to be pleased =-.

  • 3 UK Value Investor May 22, 2010, 10:19 am

    I’d have to agree with ermine. The stone age ended because we invented something better. The oil age will end because the supply will go down & the price will go up so that we *have* to find alternatives that are not better. Electric cars are a shining example of this. In some cases there may not be alternatives to hand and billions may starve. That’s not a possibility we should take lightly.

    Also, peak oil and environmental degradation are the same thing. They are all problems of the Fat Smoker.
    .-= UK Value Investor on: Building Asset Value =-.

  • 4 Len Penzo May 22, 2010, 6:21 pm

    I loved this, Investor!

    I believe technology will save the day, but only after peak oil becomes reality. Unfortunately, that means there will be lots of pain for everyone for the decade or two it will take for the world to fully integrate itself with whatever new technology man will come up with.

    All the best,

    Len
    Len Penzo dot Com
    .-= Len Penzo on: Why Your Expensive Luxury Car Doesn’t Impress Smart People. (Or Me.) =-.

  • 5 Macs May 23, 2010, 7:43 pm

    Okay, I’ll play the contrarian here, shall I? 🙂

    First off, the video said nothing new or exciting, possibly even nothing true. I mean, where was he going with the calcium carbonate theme? Nowhere as far as I could see. There’s a phrase for this kind of thinking, and it’s ‘techno-cornucopianism’. ie Technolgy will provide a solution because it always has…

    Remember, investors – ‘past performance is no guarantee of future returns’.

    We’ve all been blinded by economic thinking – if something gets ‘too expensive’ then the ‘market’ will provide a replacement. This is MAGICAL THINKING. I’ll illustrate with a joke I heard recently…

    Two economists walking down the street (in the original they were specifically Chicago-school, but I’m not quite so partisan 😉 ) One says to the other: “Look, there’s a twenty-dollar note on the floor.” The other replies (of course): “Impossible! If there was a twenty-dollar note on the floor, someone would have picked it up!” They laugh knowingly and walk on by…

    It’s the same kind of thinking that says ‘the market’ will find a replacement for oil. We really do not appreciate just how mind-bogglingly convenient and CHEAP oil has been, yet we’ve burnt through the legacy of a 100 million years in the blink of an eye, like a wastrel heiress with the world’s worst coke problem. What is clearly capital has been treated as income.

    The whole thesis of the ‘we didn’t run out of stones’ school of thought ignores one major issue – our economy is not dependent on oil, per se. It is dependant on CHEAP oil – that is the whole thrust of the ‘peak oil’ argument. Stones never got more expensive – but bronze did, iron did, silicon did and now oil is doing so. It is a little misguided to think in terms of the dollar cost of oil. What is important is EROEI – ie the energy returned on energy invested. Time was you could stick in a pin in the ground in Texas and you’d have a gusher. Now – just looking at recent events – BP is drilling two miles into the sea floor below a mile of sea! Does that not scream about the EROEI? There comes a point, no matter how much oil is left, that we have to use up more than a barrel of oil to discover, extract and process a barrel of oil. Once EROEI is less than 1, then, Houston, we have a problem. I don’t have exact figures to hand but it has declined from 100:1 in the early days, 25:1 in the early 20th century to 8:1 in the late 20th century.

    These ‘saviour’ finds like Ontario oil sands and the much-vaunted Bakken shale field are returning something like 1.3:1. Not to mention the horrendous demands for fresh water they make, and a likely annual production measured in 100s of thousands of barrels AT BEST when we have a global demand in terms of tens of millions of barrels.

    Also, we have to get away from looking at purely the West for estimates of oil demand. China and India especially are growing so fast that the reduced energy intensity of the west will be dwarfed in a very few years. Now, since oil peaked at $147 a couple of years ago (and I know some people blamed ‘speculators’ for this…) there has been a lot of demand destruction brought about by the recession. For all that OPEC *says* they have spare capacity, current production is down and prices are back up to $80 (give or take). Five years ago $80 would have been a world crisis verging on the ‘let’s nuke OPEC’ scale of reaction. Now OPEC are claiming the higher prices are required, or fair, or whatever. Personally, I believe a demand spike would call their bluff. The recession has given them breathing space, but I do not believe the production is there. We KNOW that the world’s supergiants – Gawhar and Cantarell – are in serious decline (10% per year, give or take) and we have discovered *nothing* on that scale for decades.

    For my money, we’re in ‘plausible deniability’ territory at present, but I believe we are very soon due to face the contradiction between growing demand, and diminishing supply. I’d be surprised if we end this year at less than $100 – but the way things have been manipulated recently, I’m not putting any bets on that 😉 But when the US Dept of Defence and the CIA are both citing peak oil as a serious threat, techno-cornucopianism doesn’t cut the mustard for me.

    But, but, but…. electric cars? Where do you get the electricty? But, but, but… hydrogen? How do you generate the hydrogen? But, but, but biofuels? How does a probable negative EROEI get you, not to mention that we may actually need that farmland for FOOD? But, but, but… nuclear? The mines use oil-fueled machines, as does the transport, as does processing, and we’ve never found a viable waste-disposal method, never produced a working fast-breeder, AND we (UK) spend more on nuclear site security than we do on R&D for renewables. No commercially viable nuclear generation exists – it is ALL subsidised. Oh, and there’s probably only 40 years’ worth of uranium, as well.

    So, in short, yes, we do have a problem, and no, we don’t have a solution. We need to be using a lot less energy, getting used to austerity, kissing goodbye to globalisation. The big question is not IF, but WHEN.

  • 6 Bret @ Hope to Prosper May 23, 2010, 9:22 pm

    @Macs

    Electrification, especially of cars, is a huge improvement over combustion technologies. It’s much more energy efficent and there are numerous sources for electricity. Currently, there is enough off-peak reserve electricity to power millions of EVs. By the time we produce 10s or 100s of millions of EVs, there will be widespread use of renewables, such as solar.

    Regarding the presenter’s take on nano-technology, once again, this is spot on. Currently, carbon nano-tubes are being used to improve the cathodes, of high-density batteries and super-lattice constructs are being used to create more poweful super-capacitors. These type of nano-materials are exactly what will allow the next generation of EVs and energy storage devices.

  • 7 Macs May 23, 2010, 10:23 pm

    @Bret

    I’ve been watching and hoping for an economical leap forward in electric vehicle technology for a couple of decades now, and I’m still not convinced that we’re there yet. Certainly vehicles can be a lot more efficient than they are but so long as our electricty is still largely FF based it’s more efficient to use the FFs directly in the vehicle than to use it in an IC generator (3-40% efficient), pass it through a grid (3% losses), and store it in a battery (80%) efficient. I also had big hopes for fuel cells, but they’re still incredibly expensive and have a reliable lifespan of about a year.

    I would dispute that we have the spare elctrical capacity, even now, and there have been various ruminations in the Telegraph recently about possible brown-outs in the UK in a couple of decades as we’re not replacing obsolete capacity fast enough. We still have a long way to go on renewables, but we should have started twenty years ago. IF we can get our act together then I agree Britain has probably the best renewable resource in Europe. As ever the ‘cheapest fuel’ is efficiency, and we really need to use a lot less energy before we find we’ve got less without adapting.

    I really do hope some breakthrough is achieved in energy storage as it will improve the viability of renewables on all fronts, but I’ve seen so many ‘next big things’ in the battery world flare up and fade away in practice, I’m getting a little weary of waiting.

  • 8 The Investor May 25, 2010, 9:02 am

    @Bret & @Mac – Fabulous insights guys. At the risk of sounding glib, I’d observe that necessity really is the mother of invention. I agree that oil has been abundant and cheap, but for me that’s a very concrete reason *why* there’s been so little investigation of the alternatives. The good thing about peak oil (which I certainly agree is a curve – it’s the Peak, by definition, not the end) is it hopefully eases us into alternatives becoming viable, rather than there being some sudden cut-off. I’m reminded on that front how many alternatives started to become viable at oil over $100 or so in 2008.

    A good place to look for parallels is World War 2, where intractable problems as different as synthetic rubber and nuclear weapons were turned out in short order once the need became essential. I do appreciate that the answer ‘we can invent something’ is a leap of faith rather than a statement of fact, but it’s not like we’re starting from scratch. Photovoltaics, for instance, are improving at a clip, and perhaps could already power a radically re-engineered world if they had to be.

    Finally, on that note I don’t see why an economy and social structure of the US model based around driving for 2-3 hours a day because petrol happened to be cheap and near at hand is the best we can aspire to. The potential for mobility brought on by cars and oil was and is one of the incredible and inspiring stories of the 20th Century, but the drudgery of enforced commuting and social dispersion (Death of a Salesman et al) isn’t anything to rally around.

  • 9 Macs May 25, 2010, 2:16 pm

    I know everyone says it with regard to market bubbles – “This time it’s different” – and usually they are wrong, ie bubbles keep on recurring and collapsing. But in this case, I am beginning to think it really is different.

    It’s interesting that you raised the ‘US model’ based on vast tracts of suburbia and cheap and easy motoring, as I think this has had a pivotal role in so many of the things which have gone wrong recently, and the links are often overlooked. Most salient of course is the US (and to some degree UK) housing ‘booms’ of recent decades – which were of course BUBBLES that have since collapsed with lots of sub-prime and other inappropriate lending involved. The ‘happy motoring’ culture of three-hour commutes has enabled the growth of suburbs which are not communities – I often speak to US citizens whose LOCAL shop is ten or twenty miles away, they cannot even grab a loaf of bread without driving, just to get out of the ‘burb to reach the strip-mall. These are clearly very fragile living arrangements and as some commentators have said, represent the biggest misinvestment ever.

    Speculation on housing values has fuelled a debt-feast that is still unwinding, leaving negative equity, indebtedness, unemployment and bankruptcy in its wake. The pumped up housing market has a clear link through MBSs and CDSs to the banking crisis and then through to the sovereign crises today. Suburbia, JIT delivery, globalisation and sheer ‘material standard of living’ are all predicated on the cheap oil boom.

    I agree that $100 oil improves the chances for some alternatives, but remember the $147 spike knocked out a few airlines and then rebounded, taking out some renewables companies too (eg no wind turbine manufacturers left in the UK). One of the ‘predictions’ of the peak oil scenario is a period of unstable energy prices which will pull the economy from peak to trough and back again. I believe we’re on such a ‘rocky plateau’ now, with the various forces of supply constraint, regional demand growth, demand destruction and economic contraction all feeding back into each other in a chaotic manner.

    You’re quite right that our current economic model is not the best we can aspire to, and I would add that without cheap oil it is not even possible. As we tackle the current crisis, we shouldn’t be trying to ‘recover’ ie go back to how we were, but should be looking forward in a way to cope without this amazing windfall energy subsidy. That’s why I see the future as low energy, low tech and local. We’re going there anyway, let’s at least try to plan the route a little!

    Oh, and finally (honest… 🙂 ) I’ve been ruminating on the ‘end of the stone age’ analogy, and the fundamental point I see is that ‘progress’ however we define it, has been predominantly serendipitous, it has not been directed in response to perceived problems.

    The stone age ended BECAUSE THE BRONZE AGE BEGAN. No-one sat down and decided ‘Meh, I’m bored with stones, let’s invent something better.’ Same with the Bronze-Iron transition, same with the Industrial Revolution, same with coal/oil/gas – they took over because they came along. NOT because anyone was specifically looking for a replacement for their current technology. Now we are trying to manufacture a phase-change on demand. For all the progress we have made in the past, we’ve never done it on demand before.

    THAT is why it is different ths time – now we know we have a finite horizon on our current paradigm. Now we understand the ‘power of compound interest’ and, make no doubt, we are applying that to our resource use and our population. It is the sheer scale of what we can do with oil that weighs against all the proposed technologies so far. To shift technology, we need to shift scale too, and that is likely to be very very painful.

  • 10 ermine May 28, 2010, 8:34 pm

    > A good place to look for parallels is World War 2

    From an innovation point of view, maybe. However, we have a serious problem that we didn’t have then. If oil peaks, the human population is way too high to be supported and is unsustainably high.

    It’s not transport that gives me the willies. It is agriculture. The so-called green revolution in the Sixties and Seventies was largely forged with the used of oil-based fertilisers. In the past, there was a cycle between food, its consumers and the land driven by sunlight and photosynthesis (to brutally abbreviate a complex, but sustainable process).

    We have broken this cycle by introducing fertility with fertilisers made largely from natural gas and oil-related substances. We have bought prodigious increases in agricultural production, and the human population has increased accordingly (it’s now double the 1960 value).

    If oil does peak, we have got bigger problems than an urgent need for electric cars. We will have an urgent need of fertiliser feedstock, or face large-scale starvation – there are probably about twice as many of us as traditional closed-loop agriculture could sustain. Oil and gas is not just energy, it is a source of valuable chemicals.
    .-= ermine on: Why Office Work is Bad For You =-.

  • 11 The Investor May 29, 2010, 12:26 pm

    @ermine – Yep, all good and fair comment. Plastics is another area where we’ve wasted oil burning it when we arguably should have rationed it out over thousands of years to make (ideally not disposable) materials.

    That said, I have read some research that a closely coupled, integrated farming system run to modern methods without oil input can yield a lot more than the old days.

    One ‘yuck factor’ truth is we have to get human waste integrated into the system. With six billion of us eating and most of us dumping our sewage into the sea, it’s a huge wasted resource.

  • 12 ermine May 30, 2010, 2:23 pm

    Too right, there are responsibilites that go with being top predators, and that includes not flushing the goodness of the land nutrients out to sea after we’ve done with it. It does neither the land nor the sea any good, a kind of lose-lose. Being city-born I don’t really like to think about that either. In the book Farmers of Forty Centuries about traditional Chinese farming traditions they have a section on the high value placed on ‘night soil’ 🙂
    .-= ermine on: Peak Oil and The National Automobile Slum =-.

  • 13 Trevor September 3, 2010, 9:18 pm

    Very interesting article and just as interesting comment. I just found this on Der spiegel about peak oil.

    http://www.spiegel.de/international/germany/0,1518,715138,00.html

    And this from the BBC on the economics of EV.

    http://www.bbc.co.uk/news/business-11112820

  • 14 Mark January 11, 2012, 4:03 pm

    We had civilization before oil and we’ll have it after, of course. Declining production might actually fix many environmental problems.

    What scares me about Peak Oil is the radical change it will bring. The *process* will be destructive and cause great hardship. Humanity will survive it, of course, but it will be painful.

    The U.S. suburban example was brought up by other commentors. One day, oil will be too expensive to burn as simple transportation fuel. I hope EVs can take its place, but if not, what becomes of those far-flung suburbs? Blight begets defaulted mortgages begets insolvent banks begets economic depression begets creative destruction. The free market will work all of this out, as it always does, but it will be brutal.

    Edwin Drake discovered oil in America in 1869. We have much better knowledge and technology today than before 1869, so post-peak life needn’t turn the clock back a few centuries. Still, it’s going to be a wild ride.

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