I’m in the process of trying to make my presentations available on the internets. Here are links to a couple in which people have expressed interest (PowerPoint versions only). More presentations and Keynote versions to come, I hope.
The (un)sustainability of trade and current account deficits
John Quiggin 
John,
neither Powerpoint 2004 nor Keynote 2.02 will open the Oil presentation. PP says “The file may be corrupt, in use, or of a type not recognised by Powerpoint”
the Deficits presentation works fine.
Fixed now, I hope, Darryl. Thanks for the alert.
I opened it OK now. Have you looked at the thread on Peak Oil? I would like to know what substitutes that you mention in one of your slides are?
Also what is “If supplies diminish, prices will rise and low value uses will be displaced”
Oil fired electricity is a very small part of demand. Most is transport fuel and heating oil. What part of transport will diminish and how will this affect the global market economy?
My arguments are presented in more detail at
http://www.australianreview.net/digest/2005/11/quiggin.html
JQ – one I would take issue with is this:
“A central problem in assessing future supplies of oil is the assessment of reserves”
The main central problem is not this at all – the central problem is that rate of discovery of new reserves is not making up for the depletion in present fields. No new supergiant field has been discovered since about 1965.
“Then there is the possibility that oil can be economically extracted from sources such as shales and tar sands”
Tar sands are just a method of converting natural gas to oil. No NG no oil and the conversion EROI is at best 3:1
“Following the increase in prices, most oil-fired power stations were converted to gas or coal. Where natural gas was readily available, the same was true of home heating.”
So if you are using all your natural gas to make oil and generating electricity where does the gas come from to switch to when the oil price rises. NG prices have tripled in the US recently.
“Provided the reduction in usage takes place over a sufficiently long period, say twenty years, the answer is ‘surprisingly cheap’. There are many ways in which consumers can adjust to higher fuel prices so as to reduce their usage of oil.”
Yes but they cannot stop. There may not be 20 years to adjust. If oil fields are pushed to maintain flow with water injection etc it just means that they deplete faster so if the crunch comes it could come quickly.
PrQ,
I think you about hit the nail on the head with the oil one.
.
The assessment of reserves is the problem for assessing future supplies, Ender. It may not be the problem for actual exhaustion, but it is the problem for the calculation of exhaustion.
Andrew – the reserve figure is not a one you can rely on. Most Middle East reserve figures are not subject to any independant audit and actual reserves are closely guarded secrets.
Also reserves do not give any idea of flow rate. You might have 3 trillion barrels of oil however if you can only extract 1 million barrels per day then supply will be restricted. Most old fields are depleting rapidly and new oil is just making up for this. For every 2 or 3 barrels of oil we use we are only finding 1.
You probably all know this already, but JQ got a mention in Kenneth Davidson’s latest piece in the AGE.
http://www.theage.com.au/news/kenneth-davidson/heat-is-on-for-melbourne-as-the-bankable-city/2005/11/30/1133311100126.html
ender is correct when it comes to reserves.
I might add the saudis actions do not reflect their words regarding how many reserves they do have.
I thought John Quiggins article was very well written and very balanced.
http://www.australianreview.net/digest/2005/11/quiggin.html
In particular I think he was spot on with the following paragraph:-
* The responsiveness of oil prices to macroeconomic shocks is clear in the case of the original 1973 oil shock. An inflationary upsurge was well under way by the time OPEC oil ministers met in October 1973. Wage and price controls had been imposed in the United States in 1971, but had broken down by early 1973—the oil shock merely administered the coup de grace, leading to the final abandonment of controls. Prices of all kinds of commodities were skyrocketing, and monetary policy was being tightened in response, making a decline into recession inevitable. Because of the cartelised nature of the oil market, oil prices responded with a lag, just as the world economy was beginning its downturn.
Too many authors blame the Arabs for 1970s inflation. The true cause was monetary and the Arabs were merely bit players in the “price spiral” unleashed.
A normalised nominal price curve for GOLD and OIL demonstrates Johns point that Inflation was already in the pipeline.
RED = normalised gold price. BLUE = normalised oil price.
I do take minor issue with this part of the above extract:-
* Prices of all kinds of commodities were skyrocketing, and monetary policy was being tightened in response, making a decline into recession inevitable.
It would be interesting to see how John qualifies this statement. How is he measuring evidence of any monetary tightening?
Ender,
I agree with your last post; you may want to re-read mine.
of course one can believe in peak oil and get the scenario JQ paints if what happened to whale oil happens to crude oil!
Andrew – I did read it and replied that the reserves that are listed are not really accurate and also can give a misleading view. Oil reserves are no good if you cannot get the oil out. In the case of Canadian tar sands if the final output of 5 million barrels per day is ever acheived then they will be using Canada’s entire natural gas output to get this oil. Oil flow from a new reserve is only limited by the number of wells and the well pressure. So when you say that there is say 1 trillion barrels of oil in tar sands as a substitute for ME oil then this assumes that you can get this oil at the Saudi rate of 12 million barrels per day. This is not the case so the 1 trillion barrels that you have on your books cannot be exploited at the rate that you need.
Enders point is important.
It is not about the size of reserves. It is about the rate at which reserves can be tapped.
It is like having an extremely large water tank that only has a very, very small tap. Standing around the tap a large enough group of people could still die of thirst even if the tank was still half full.
The thesis of Peak Oil is more about the size of the tap than the size of the tank.
“Too many authors blame the Arabs for 1970s inflation. The true cause was monetary and the Arabs were merely bit players in the “price spiralâ€? unleashed. ”
The arab-haters like to ignore the fact that the price of oil had remained constant for almost 30 years prior to 1972. In real terms, the price increases simply returned the price to what it had been in the immedaite post-war period.
During the Brenton Woods years the price of commodities was very stable (see my earlier chart of normalised gold and oil prices).
If price stability is an objective of monetary policy then what we have had since 1970 and up to today is monetary failure. Commodity prices bounce all over the shop depending which way the central bankers mood blows.
Stable commodity prices means stable consumer prices. What the Kenesians miss with their “Inflation Targeting” regime is that the reverse is not true.
We have unstable currency prices, unstable commodity prices and they declare “inflation targeting” a monetary policy success!!! Sham would be a better word.
And to those that think this is getting off the topic of oil let me say this. The US deflationary pressures of the late 1990s (ie US monetary errors) is what turned everybody off looking for oil. That policy has come back to bite us.
John
With regard to peak oil, I wondered what assumptions you had made in estimating that the economic cost of reducing oil consumption by 50% over 30yrs would be only about 1 yrs economic growth. How sensitive is that estimate to a relatively sharp shortfall in oil availability for transportation due to lag effects and ‘real world’ control of oil by some countries. Some commentators assert that there will be a net shortfall in energy unless government regulations are put in place decades before global oil production starts to decline, given that global demand is increasing significant on the back of the demand from China and India.
Did you assume a steady incremental substitution of other energy for oil as prices informed the market? How likely is this scenario given that the infrastructure for alternative energy sources may take years to gear up? What is likely to be the effect of our trade commitments to export gas and other commitments under free trade agreements on Australia’s self sufficiency in oil and gas?
Brian,
As I think is pretty clear from my reference to a 30-year period, I’m looking at the costs of a smooth and gradual adjustment. Whether we achieve this depends largely on how competently policy is managed; most obviously on whether we start now.
Note however, that most of the discussion is about adjustment on the demand side, not on alternative energy sources.
JQ – I was interested in the BOP presentation which did not give any text only a few graphs. I am perplexed by the current local and international levels of liquidity evidenced by the level of asset inflation (first stocks and now housing), low interest rates and low long term bond rates and the paradox that we can be awash in so much money with some levels of goods at very high prices indeed but no real inflation.
I note that the CPI changes have managed to take out a number of goods over the past decade or so that may be distorting the reality of house prices vis a vis inflation. I have a very uncomfortable intuitive view that inflation has actually been roaring its head off for some time and that by not measuring some things, keeping a tight rein on others (wages growth) we have somehow deluded ourselves as to the true state of money, capital and liquidity and central banks capacity to deal with it, i.e., derivatives and other exotics escaping the interest rate net and hence not responsive to normal interest rate treatment. It seems analagous to a very large balloon with the RBA and FED’s foot in the middle saying its under control but the side lobes of expansion appear likely to go bang at any moment. Any insights?
I’m concerned about the issues you raise, Mike and have addressed them in various posts, but the problems are too complex for a comments thread. Keep reading the site and use the search facility and you’ll find discussion of a lot of these issues.
JQ
Thanks for the response, always try to touch base once every day or so, it will be interesting to see how it all unravels.