387 thoughts on “Peak Oil

  1. Peter2,
    Your request is probably one that deserves a very long response, but, as a start, I would answer your question on the SUV in this way – every action I take has a risk of some description of interfering with your freedoms. Most of those are manageable without interference by the State – some because they result in little or no loss to you require no action and others because you mention to me that I am annoying you and I agree to stop what I am doing. Some of those may require some civil intervention – i.e. you take me to court for some action and the most extreme should incur a criminal penalty.
    My decision (if I had one) to drive an SUV could fall into any of those categories, depending on what I do with it. To me, at least, this is the crucial point – if I exercise my freedoms in a way that curtails your freedoms then there may be a need for some action and the degree of that curtailment dictates the degree of the response – no more. For you to say that I cannot drive an SUV on the off chance that I may run you over with it would be an unjustified intrusion into my freedoms and for me to drive my SUV over you would be even worse. Most of the time these matters are easy to work out with some common sense. Where they are not that is what we have a court system for – another point where I see a government as being useful.
    On the question of externalities, like GHG and other apparent pollution, the issue is that my exercise of my freedoms affect no other individual in a big way, but may reduce the wealth of society as a whole. It is in this area that government action may be justified, and is why I am being an active participant in this discussion. The appropriateness, direction and degree of intervention are all good and open topics for debate.

  2. This paper makes the case that biodeisel from algae could be a good short-to-medium term option to replace fossil fuels:



    NREL’s research showed that one quad (7.5 billion gallons) of biodiesel could be produced from 200,000 hectares of desert land (200,000 hectares is equivalent to 780 square miles, roughly 500,000 acres), if the remaining challenges are solved (as they will be, with several research groups and companies working towards it, including ours at UNH). In the previous section, we found that to replace all transportation fuels in the US, we would need 140.8 billion gallons of biodiesel, or roughly 19 quads (one quad is roughly 7.5 billion gallons of biodiesel). To produce that amount would require a land mass of almost 15,000 square miles. To put that in perspective, consider that the Sonora desert in the southwestern US comprises 120,000 square miles. Enough biodiesel to replace all petroleum transportation fuels could be grown in 15,000 square miles, or roughly 12.5 percent of the area of the Sonora desert (note for clarification – I am not advocating putting 15,000 square miles of algae ponds in the Sonora desert. This hypothetical example is used strictly for the purpose of showing the scale of land required). That 15,000 square miles works out to roughly 9.5 million acres – far less than the 450 million acres currently used for crop farming in the US, and the over 500 million acres used as grazing land for farm animals.

    n “The Controlled Eutrophication process: Using Microalgae for CO2 Utilization and Agircultural Fertilizer Recycling”3, the authors estimated a cost per hectare of $40,000 for algal ponds. In their model, the algal ponds would be built around the Salton Sea (in the Sonora desert) feeding off of the agircultural waste streams that normally pollute the Salton Sea with over 10,000 tons of nitrogen and phosphate fertilizers each year. The estimate is based on fairly large ponds, 8 hectares in size each. To be conservative (since their estimate is fairly optimistic), we’ll arbitrarily increase the cost per hectare by 100% as a margin of safety. That brings the cost per hectare to $80,000. Ponds equivalent to their design could be built around the country, using wastewater streams (human, animal, and agricultural) as feed sources. We found that at NREL’s yield rates, 15,000 square miles (3.85 million hectares) of algae ponds would be needed to replace all petroleum transportation fuels with biodiesel. At the cost of $80,000 per hectare, that would work out to roughly $308 billion to build the farms.

    The operating costs (including power consumption, labor, chemicals, and fixed capital costs (taxes, maintenance, insurance, depreciation, and return on investment) worked out to $12,000 per hectare. That would equate to $46.2 billion per year for all the algae farms, to yield all the oil feedstock necessary for the entire country. Compare that to the $100-150 billion the US spends each year just on purchasing crude oil from foreign countries, with all of that money leaving the US economy.

  3. Ian,
    So we may finally have found a use for the WA, SA, NT and Qld outback beyond keeping a few methane production units (cows) going. The Saudis will also be able to produce a lot of energy too.
    Even more possible solutions, James. Do we still need to push everyone out of the cities and make us all poor?

  4. Oops, I’d forgotten all about solar ponds, an Israeli development, I believe.

    Ian Gould has said: ‘At the cost of $80,000 per hectare, that would work out to roughly $308 billion to build the farms.’

    How many parts of the world cost $80,000 a hectare?

    This morning’s business pages were predominately about AGW, uranium, the FTA and a new all-hydrogen car by BMW. So much for the unthinking complacency of the ‘We Will Kill The Planet’ public.

    And in California, Arnold S has introduced tax credits for anyone who puts solar heating on their roof.

  5. The dynamics of a financial system based on money issued as interest-bearing debt lock the economy into exponential growth so the interest on debt can be repaid – otherwise the eoconomy collapses. Money is a claim on real wealth i.e. on real resources including natural capital. The current financial system therefore creates exponential growth in claims on the finite and diminishing stock of natural capital. This is inexorably underming any positive action on maintaining natural capital and will need to be changed before we can move towards real sustainability

    I think we should denationalise money and get governments out of that line of business. Natural forms of market money (or commodity money) include some level of demurrage that ensures that NPV calculations (net present value) used in finance will lead to a heavier emphasis towards the future.

    It is only government created fiat money that is completely free of carrying cost. And our current high interest rate monetary regime ensures that every NPV calculation done before the private sector finances any endeavour of significance places a very high discount on the future.

    Whilst we continue to use modern fiat money that is notionaly risk free and without demurrage the future will not be valued.

    When demurrage was common place in the days of commodity money it was rountine for people to finance Cathedrals that would take 300 years to build, settlements that would take a decades to complete and all sorts of future oriented endeavours. Our current monetary system ensures that our focus is concentrated on the hear and now and only a very short distance into next week.

    It is not our financial system that is the problem. The problem is with our monetary system that underlies it.

  6. Terje
    I agree that we need to find a way of properly valuing the future in our investment decisions rather than significantly discounting the future as we do at present.

    With regard to the question of who issues money, the current method can be thought of as the government issuing banknotes as ‘symbolic tokens of electronic credit-based money that has already been created or more precisely, issued by private banks through fractional reserve banking.’ (Wikipedia) This suggests that the electonic credit-based money is the cause and banknotes the effect.

    It seems to me that in any interest rate regime, the money supply must grow to enable the interest to be repaid. If the money supply grows then claims on natural capital must also grow, resulting in escalating damage to that natural capital. For further details see http://homepages.picknowl.com.au/ERANet/cad.htm

  7. With regard to the question of who issues money, the current method can be thought of as the government issuing banknotes as ’symbolic tokens of electronic credit-based money that has already been created or more precisely, issued by private banks through fractional reserve banking.’

    You could think of it that way but it would be wrong. Our currency is not a symbolic representation of electronic credit money. It is a fiat currency with utility as a “medium of exchange” that derives value from the market intersection of supply and demand.

    If the base money supply does not grow (in a growing economy) then the value of money will rise (deflation).

    You seem to impute some special power to private banks and fractional reserve banking that I am not aware of.

  8. I would be interested in any comments on the editorial on the website 321gold about a supposed ‘Iranian Oil Bourse’ The link is http://www.321gold.com/editorials/petrov/petrov011706.html
    While this editorial is not specifically on the Peak Oil issue, it touches on the general questions of control of the oil market as well as possible impacts on the US economy of the so-called ‘Iranian Oil Bourse.’

  9. Characterising the US dollar and its status as a global reserve currency as a form of empire tax is interesting although not strictly true. The world is not forced to trade in US dollars even though circumstances have conspired to make it difficult to do otherwise.

    I certainly think that any move to dislodge the central role of the US dollar will have significant repercussions for both the USA and the world. If it simply means a transfer of power to the Euro it will be a disappointment as we will be replacing one devil with another.

    I would prefer either an international fiat currency (eg the commodity backed Bancor favoured by Keynes) or else a natural commodity currency (eg gold). I have a strong bias towards the latter although the former is certainly not without merit.

  10. The reason why the USD is the global reserve currency is simple – network benefits. Because the USD is heavily traded and forex rates can be determined easily between the USD and any other currency anyone can walk into virtually any bank anywhere and convert their own currency into or out of USD. You can buy options, forwards, futures, cross currency swaps and any other instrument in USD easily.
    So, for example, if you want to sell your oil overseas in your own currency, your client would first need to agree a price with you and then get a forward contract from your currency into USD and another from USD into their own (if they want to lay off the currency risk). If you both deal in USD, then both sides are dealing with risks they are familiar with and may already have a hedging strategy in place for. It just makes things simpler and less expensive, even if the USD uncertainty appears to upset this, it would take a huge amount of instability, catching a lot of the market off-guard, before they even started looking at alternatives. Even then, it would probably be the Euro.

  11. Andrew,

    You are correct that the USD remains the global reserve currency for these reasons. However we should not forget the reasons as to why the USD gained this status.

    1. At one point the USA represented such a large proportion of world production that its currency was naturally more liquid and its capital markets deeper. Its significance (ie percent of world GDP) is now declining.

    2. It was a gold backed currency and inherited the credibility of gold (as did the previous dominant dominant world currency, the Pound Sterling).

    3. Brenton Woods.

    Economists like Keynes originally saw a Brenton Woods system being centred on a commodity backed currency called the Bancor. The fact that the USD assumed the central role was in no small part due to the dominant position that the USA was in after WWII.


  12. Sorry to revive this thread, but I found this interesting article in the Economist while researching another point. I do not think it is for subscribers only.
    Any comments, PrQ? Their basic argument is that Hubbert’s peak is years off, may well form a plateau rather than a peak and that technology should allow for a maintenance of production for the foreseeable future.

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