Weekend reflections

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

Is Peak Oil here already ?

There’s been a lot of discussion about claims that world oil output is going to reach a peak some time soon. If you look at the recent numbers, there’s a pretty good case to be made that world all output has already reached its peak at about 73 million barrels a day, a level reached in mid-2004, and sustained for the past two years.

Now there are lots of local factors that explain weak output in particular countries. Still, if the claims made by those who think oil output can keep on growing were correct, I would have expected the massive increase in prices (from a brief low of $10/barrel and a medium-term price of $20/barrel in the late 1990s to $75/barrel today) to produce a substantial expansion in supply.

This argument is pretty robust to whether oil producers believe that there is plenty of oil (implying that prices will come down again) or not. If prices are going to come down, then there’s a strong incentive to pump more in the short term, use secondary recovery from depleted wells and so on. If prices are going to stay high, there’s a strong incentive to bring large new fields online, even if they are in high cost locations. As far as I can see, neither of these things is happening.

Supposing that oil output has peaked, the obvious point to be made is that Peak Oil isn’t so bad. Sales of Hummers are plummeting, apparently, and lots more people are using buses (at least in Brisbane). And of course, the less oil there is to burn, the easier it will be to stabilise CO2 emissions (though we can’t just rely on Peak Oil – apart from anything else, there’s almost unlimited coal in the ground, far more than we can burn without frying the planet in the process).

Even if supplies have peaked (or, more plausibly, flattened out at the top of the curve), I doubt that prices will go much higher than this, though $100/barrel is certainly possible. If current prices are sustained, a lot of alternatives will become cost-competitive, as already seems to be happening with biofuels in the US. More importantly, demand is bound to respond more than it already has.
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Reader Paul Williams, who works in TAFE policy in NSW, points me to this interesting report on the economic value of TAFE, undertaken by Allen Consulting, who do the whole thing with a general equilibrium model and estimate the NPV of the TAFE sector at $196 billion.

The report has had some coverage in the media, but there’s a pretty good case to be made that this kind of thing could be better disseminated through blogs, where there’s time to debate the issues. Then again, you could argue that after 30 comments we’ll all be debating the influence of climate on the civil war in Iraq.

You can read it here

Also, in today’s (Wednesday) Fin, Alan Mitchell has an excellent piece lamenting Australia’s lousy record in building human capital, something that isn’t helped when the PM encourages kids to drop out of school at the end of Year 10 in the hope (unlikely, these days, without the kinds of skills obtained by persevering to Year 12) of getting and completing an apprenticeship.

Out of options and out of credit

Daniel Byman and Kenneth Pollack start a lengthy Washington Post piece by observing

The debate is over: By any definition, Iraq is in a state of civil war.

and their assessment only gets gloomier from there on in, pointing to the disaster as a source of further regional conflict, a recruiting poster and training ground for terrorists, massive flows of refugees and so on. They have essentially nothing positive to suggest except for the observation (for which General Shinseki got fired before the war) that

Considering Iraq’s much larger population, it probably would require 450,000 troops to quash an all-out civil war there. Such an effort would require a commitment of enormous military and economic resources, far in excess of what the United States has already put forth.

Since the commitment of 450 000 troops is even less likely now than it was in 2003, the conclusion is, in effect, that the situation is hopeless.

We’re well past the point where admissions of error will do any good. Still, I’m stunned that Pollack could write

How Iraq got to this point is now an issue for historians (and perhaps for voters in 2008); what matters today is how to move forward

This was so brazen that I thought I must have got him confused with someone else. But no, it’s the same Kenneth Pollack who wrote The Threatening Storm: The Case for Invading Iraq

Give a goat

Lots of people like goats. So a goat is a great gift idea, but as with other live gifts, there’s the problem of looking after it. Oxfam unwrapped solves the problem. They’ll give a goat, in the name of your gift recipient, to a poor community. At $39, tax deductible it’s a great choice. And there are other choices, including chickens, farmer training and food.
The big ticket gift is a rice bank for $12488. Maybe we could manage this for our next appeal. In the meantime, why not give a goat.