Author Topic: Peak Oil and currently depressed oil prices  (Read 6008 times)

Thegoblinchief

  • Guest
Peak Oil and currently depressed oil prices
« on: January 27, 2015, 02:51:24 PM »
I've read a lot of books that have convinced me about Peak Oil...right about when oil prices started crashing.

It hasn't changed my desire to conserve, because price is irrelevant - unnecessary petroleum burning IS harmful - but I'm curious what the relationship is here.

My Low-Information Diet has kept me from really following the oil price depression and the forces behind it. Oh more connected Mustachians, enlighten me!

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: Peak Oil and currently depressed oil prices
« Reply #1 on: January 27, 2015, 03:31:41 PM »
My Low-Information Diet has kept me from really following the oil price depression and the forces behind it. Oh more connected Mustachians, enlighten me!

The conspiracy theory is that we (the US) are paying Saudi Arabia to keep the supply high in an effort to undermine Russia because Putin was acting like an ass.

Or

Saudi Arabia is the holder of still vast reserves and sees all the expanded production from other avenues and wants to keep the price low enough to put these other non-conventional drillers out of business, or buy them.  I'm thinking like the Microsoft business model.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4422
  • Location: CT
Re: Peak Oil and currently depressed oil prices
« Reply #2 on: January 27, 2015, 03:36:59 PM »
ScroogeMcDutch has a pretty good link in this post.

goose318

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Peak Oil and currently depressed oil prices
« Reply #3 on: January 27, 2015, 03:55:48 PM »
As a Geologist, basically there is no way we are going to run out of oil. Purely because as long as someone is willing to pay the cost for extracting it people will come up with new ways to extract it, the answer to the question about how much oil is left is "How much money do you have?". What could happen is that at some point oil will no longer make economic sense to extract and cheaper alternatives will come along to replace it.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4422
  • Location: CT
Re: Peak Oil and currently depressed oil prices
« Reply #4 on: January 27, 2015, 04:10:22 PM »
As a Geologist, basically there is no way we are going to run out of oil. Purely because as long as someone is willing to pay the cost for extracting it people will come up with new ways to extract it, the answer to the question about how much oil is left is "How much money do you have?". What could happen is that at some point oil will no longer make economic sense to extract and cheaper alternatives will come along to replace it.

I'm skeptical about this answer given the fact that oil comes from organic materials that have sat in the ground for a very long time (simplistic I know). Given that are you proposing there is infinite amount of oil in the ground?

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 2148
  • Age: 51
  • Location: Houston TX
  • Devour your prey raptors!
    • Living Universe Foundation
Re: Peak Oil and currently depressed oil prices
« Reply #5 on: January 27, 2015, 05:43:14 PM »
As a Geologist, basically there is no way we are going to run out of oil. Purely because as long as someone is willing to pay the cost for extracting it people will come up with new ways to extract it, the answer to the question about how much oil is left is "How much money do you have?". What could happen is that at some point oil will no longer make economic sense to extract and cheaper alternatives will come along to replace it.

I'm skeptical about this answer given the fact that oil comes from organic materials that have sat in the ground for a very long time (simplistic I know). Given that are you proposing there is infinite amount of oil in the ground?

The Peak Oil argument was developed during a time technology allowed us to extract between 10-20% of the oil known to be in the ground.  As the price has risen, and technology improved, we have discovered ways to extract much larger percentages.  The number can keep going up longer than you or I (or our grandchildren) will live.  While it is technically finite, the practical limit is ginormous.  (But the price could become dear.)

There is also another hydrocarbon source that dwarfs oil.  A substance known as "kerogen" is basically proto-oil and exists in almost unimaginably large deposits.  Ever heard of the Rocky Mountains?  Basically one monster kerogen deposit.

There is also technology developing to recreate what nature did and make our own oil and oil products.  KiOR didn't make it but they were making literal gasoline from pine chips.  A company called Solazyme (and several competitors) make oil from algae.  It is trivially easy to produce methane from organic decay as well.  Even the lowly cow is good at it.  It is so easy we do it on accident in essentially every sanitary landfill on the planet.  Many have been tapped as a fuel source to co-generate electricity.  All this easy to produce methane can also be turned into oil via a process known as "gas to liquids".  It is expensive but if you use goose's argument that the available amount is equal to how much money you have, oil is roughly infinite.

I'll give a tiny caveat to the gas to liquids tech.  We can make from natural gas/methane: NGLs, condensates, napthenes, and paraffins, but it is not yet known how to make asphaltines; so we *might* have to give up blacktopping roads until technology catches up...

JamesAt15

  • Stubble
  • **
  • Posts: 200
  • Location: Tokyo, Japan
Re: Peak Oil and currently depressed oil prices
« Reply #6 on: January 27, 2015, 06:53:55 PM »
I'll give a tiny caveat to the gas to liquids tech.  We can make from natural gas/methane: NGLs, condensates, napthenes, and paraffins, but it is not yet known how to make asphaltines; so we *might* have to give up blacktopping roads until technology catches up...

That's okay, we'll put in... SOLAR FRICKIN' ROADWAYS!

Ahem.

bacchi

  • Walrus Stache
  • *******
  • Posts: 7056
Re: Peak Oil and currently depressed oil prices
« Reply #7 on: January 27, 2015, 07:18:13 PM »
Peak oil isn't about running out of oil. It's about when production hits its peak. The peak in the US was 1970, even with all that dadgum new-fangled technology. It may eventually go higher than 1970 but not anytime soon (and the Bakken et al fields are looking pretty pitful).

Luke Warm

  • Pencil Stache
  • ****
  • Posts: 799
  • Location: Ain't no time to wonder why
Re: Peak Oil and currently depressed oil prices
« Reply #8 on: January 28, 2015, 08:04:05 AM »
F-150 sales are probably through the roof right now. Good time to buy a Prius?

rocksinmyhead

  • Handlebar Stache
  • *****
  • Posts: 1489
  • Location: Oklahoma
Re: Peak Oil and currently depressed oil prices
« Reply #9 on: January 28, 2015, 08:15:27 AM »
As a Geologist, basically there is no way we are going to run out of oil. Purely because as long as someone is willing to pay the cost for extracting it people will come up with new ways to extract it, the answer to the question about how much oil is left is "How much money do you have?". What could happen is that at some point oil will no longer make economic sense to extract and cheaper alternatives will come along to replace it.

I'm skeptical about this answer given the fact that oil comes from organic materials that have sat in the ground for a very long time (simplistic I know). Given that are you proposing there is infinite amount of oil in the ground?

I'm guessing goose318 means that we will "economically" run out of oil but there will still be oil in the ground. personally I believe the "what could happen" in his/her final sentence is what WILL happen.

Kyle Schuant

  • Handlebar Stache
  • *****
  • Posts: 1314
  • Location: Melbourne, Australia
Re: Peak Oil and currently depressed oil prices
« Reply #10 on: January 28, 2015, 08:58:54 AM »
Conventional oil production peaked in 2005. Gains since then have been from tar sands, biofuels and the like.

The issue is simply that it takes energy to produce energy. For example, when you first tap a new reservoir, the pressure from the weight of the rock above it will squeeze the oil out. As the oil depletes, this pressure is no longer enough, so you pump in something like water, this water costs energy to pump into the ground, and as the reservoir depletes further, the water is under greater pressure from its own weight, so more energy is needed to pump it in there. And the oil that comes up is mixed with water, and you need a system to separate them, and so on.

Obviously decades ago we discovered a bunch of oilfields, some were easy to access, some hard, guess which ones we tapped first. This is why you now get more deep sea oil rigs, drilling down through a mile of water, half a mile of rock, another half a mile of salt, before they get to the oil. Guess what, all that costs energy too.

As well, in the process of burning energy to get energy you also produce more pollution. Do a google image search for "tar sands" and you'll see what I mean, it's a messy process.

What you get is that in 1950 you'd have 1 barrel of oil equivalent burned to extract 100, nowadays it's more like 1 to 20-30 in places like Saudi Arabia, and 1 to 4-6 in the newer deposits. So whatever the dollar cost we're willing to pay, it's the same as everything else in life, diminishing returns, it becomes not worth the trouble.

It's true that improving technology means we can always get new oil. In principle we could mine Titan, the moon of Saturn that has hydrocarbon seas. But it's not really worth the trouble.

The dollar cost is significant too. If you earn $100 a day and the fuel to drive you to work costs you $100, well then you probably stay at home. Short of that unlikely scenario, life starts becoming difficult when transport becomes expensive. Because it's not just your commute, but transport of good around the world. Those $5 Chinese t-shirts would be a bit pricier without cheap oil to transport them across the oceans for you.

In practice oil prices are never likely to rise so high they destroy a Western economy. What happens as the price rises is that sources people couldn't be bothered with suddenly look good, everyone rushes out and develops them, they all come online 5-10 years later, people cut their consumption by driving less and putting in alternative energy, the price drops precipitously, those borderline oil fields become uneconomic, they get mothballed and fire all their workers, production drops, the alternatives become more expensive, people start driving more, and the price rises again.

As well, high oil prices flow on to high coal and gas prices, and money spent on things we burn is less money spent on expanding factories, renovating homes, educating children, healthcare and so on. A strong economy can withstand high energy prices, a weak economy or one in recession will be hit hard by them. Thus high prices lead to "demand destruction", which is economist-speak for "everyone gets fucked up." You know when you lose your job and you're broke? Your demand for goods and services has been destroyed.

When resources are near their limit, it all becomes more volatile and unpredictable. Oil will never run out, but it will become more and more uneconomical to simply burn it. And oil is so useful in making plastics and various chemicals, it's just wasteful to burn it. In future years people will look on us burning it as a carpenter would look at you burning some fine walnut wood.

luigi49

  • Bristles
  • ***
  • Posts: 291
Re: Peak Oil and currently depressed oil prices
« Reply #11 on: January 28, 2015, 02:28:01 PM »
My Low-Information Diet has kept me from really following the oil price depression and the forces behind it. Oh more connected Mustachians, enlighten me!

The conspiracy theory is that we (the US) are paying Saudi Arabia to keep the supply high in an effort to undermine Russia because Putin was acting like an ass.

Or

Saudi Arabia is the holder of still vast reserves and sees all the expanded production from other avenues and wants to keep the price low enough to put these other non-conventional drillers out of business, or buy them.  I'm thinking like the Microsoft business model.

Why is this a conspiracy theory?  Didn't putin just walk in to ukraine?

MsRichLife

  • Pencil Stache
  • ****
  • Posts: 539
  • Age: 46
    • Living My Rich Life
Re: Peak Oil and currently depressed oil prices
« Reply #12 on: January 28, 2015, 02:37:17 PM »
Conventional oil production peaked in 2005. Gains since then have been from tar sands, biofuels and the like.

The issue is simply that it takes energy to produce energy. For example, when you first tap a new reservoir, the pressure from the weight of the rock above it will squeeze the oil out. As the oil depletes, this pressure is no longer enough, so you pump in something like water, this water costs energy to pump into the ground, and as the reservoir depletes further, the water is under greater pressure from its own weight, so more energy is needed to pump it in there. And the oil that comes up is mixed with water, and you need a system to separate them, and so on.

Obviously decades ago we discovered a bunch of oilfields, some were easy to access, some hard, guess which ones we tapped first. This is why you now get more deep sea oil rigs, drilling down through a mile of water, half a mile of rock, another half a mile of salt, before they get to the oil. Guess what, all that costs energy too.

As well, in the process of burning energy to get energy you also produce more pollution. Do a google image search for "tar sands" and you'll see what I mean, it's a messy process.

What you get is that in 1950 you'd have 1 barrel of oil equivalent burned to extract 100, nowadays it's more like 1 to 20-30 in places like Saudi Arabia, and 1 to 4-6 in the newer deposits. So whatever the dollar cost we're willing to pay, it's the same as everything else in life, diminishing returns, it becomes not worth the trouble.

It's true that improving technology means we can always get new oil. In principle we could mine Titan, the moon of Saturn that has hydrocarbon seas. But it's not really worth the trouble.

The dollar cost is significant too. If you earn $100 a day and the fuel to drive you to work costs you $100, well then you probably stay at home. Short of that unlikely scenario, life starts becoming difficult when transport becomes expensive. Because it's not just your commute, but transport of good around the world. Those $5 Chinese t-shirts would be a bit pricier without cheap oil to transport them across the oceans for you.

In practice oil prices are never likely to rise so high they destroy a Western economy. What happens as the price rises is that sources people couldn't be bothered with suddenly look good, everyone rushes out and develops them, they all come online 5-10 years later, people cut their consumption by driving less and putting in alternative energy, the price drops precipitously, those borderline oil fields become uneconomic, they get mothballed and fire all their workers, production drops, the alternatives become more expensive, people start driving more, and the price rises again.

As well, high oil prices flow on to high coal and gas prices, and money spent on things we burn is less money spent on expanding factories, renovating homes, educating children, healthcare and so on. A strong economy can withstand high energy prices, a weak economy or one in recession will be hit hard by them. Thus high prices lead to "demand destruction", which is economist-speak for "everyone gets fucked up." You know when you lose your job and you're broke? Your demand for goods and services has been destroyed.

When resources are near their limit, it all becomes more volatile and unpredictable. Oil will never run out, but it will become more and more uneconomical to simply burn it. And oil is so useful in making plastics and various chemicals, it's just wasteful to burn it. In future years people will look on us burning it as a carpenter would look at you burning some fine walnut wood.

Kyle Schuant...You nailed it.

Peak conventional oil is already behind us. The future of oil prices is likely to be high volatility with a general upwards trend. There will be huge economic and geopolitical ramifications, but it's impossible to predict how it's going to play out.

I've spent the last year researching and writing a thesis on the potential risks.

Eric

  • Magnum Stache
  • ******
  • Posts: 4057
  • Location: On my bike
Re: Peak Oil and currently depressed oil prices
« Reply #13 on: January 28, 2015, 03:45:18 PM »
My Low-Information Diet has kept me from really following the oil price depression and the forces behind it. Oh more connected Mustachians, enlighten me!

The conspiracy theory is that we (the US) are paying Saudi Arabia to keep the supply high in an effort to undermine Russia because Putin was acting like an ass.

Or

Saudi Arabia is the holder of still vast reserves and sees all the expanded production from other avenues and wants to keep the price low enough to put these other non-conventional drillers out of business, or buy them.  I'm thinking like the Microsoft business model.

Why is this a conspiracy theory?  Didn't putin just walk in to ukraine?

I'm not sure I understand how your two questions are related.  To answer the first one, it's a conspiracy theory because it's unlikely that the USA is paying (a lot of) money to artificially deflate oil prices just to fuck with Russia.  Read other posts in this thread for more credible explanations of the price drop.

StashDaddy

  • Stubble
  • **
  • Posts: 129
  • Age: 44
  • Location: Sugar Land, TX
Re: Peak Oil and currently depressed oil prices
« Reply #14 on: February 04, 2015, 07:37:05 AM »
I had bought into the Peak Oil alarmism, too.  But the past year has taught us that its a BIT too early to worry about it.  Like 100 years too early, at least.

fodder69

  • Stubble
  • **
  • Posts: 166
  • Location: Charlotte, NC
Re: Peak Oil and currently depressed oil prices
« Reply #15 on: February 04, 2015, 07:54:02 AM »
The biggest factor in oil prices now, as I understand it, is that demand has flattened out rather than increasing at the rate predicted. In the US, EU and Japan, oil consumption is actually down. New world consumption is increasing, not sure the predictions for that, certainly will go up but not sure if at the same rate.

ralfy

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Peak Oil and currently depressed oil prices
« Reply #16 on: February 05, 2015, 10:26:24 AM »
It's possible that the price went down because of deflation. That's why other commodity markets are experiencing similar issues.

The bad news is that because of peak oil production costs are high.

CCCA

  • Pencil Stache
  • ****
  • Posts: 631
  • Location: Bay Area, California
  • born before the 80's
    • FI programming
Re: Peak Oil and currently depressed oil prices
« Reply #17 on: February 05, 2015, 10:37:04 AM »
As a Geologist, basically there is no way we are going to run out of oil. Purely because as long as someone is willing to pay the cost for extracting it people will come up with new ways to extract it, the answer to the question about how much oil is left is "How much money do you have?". What could happen is that at some point oil will no longer make economic sense to extract and cheaper alternatives will come along to replace it.

I'm skeptical about this answer given the fact that oil comes from organic materials that have sat in the ground for a very long time (simplistic I know). Given that are you proposing there is infinite amount of oil in the ground?

I'm guessing goose318 means that we will "economically" run out of oil but there will still be oil in the ground. personally I believe the "what could happen" in his/her final sentence is what WILL happen.


But the thing is that economics have a way of changing with technology.  Fracking and tar sands, while environmentally questionable, are things that didn't exist last century and thus, estimates of reserves can go up significantly.  Economics has a way of making things that seem too expensive come down in cost if demand is high.  For prices under $120/bbl there is way, way, way too much oil that can be extracted. 


We may see peak oil due to demand reduction (efficiency and macroeconomic effects), but it's seems unlikely to me that we'll see peak oil due to sky-rocketing prices (several hundred dollars a barrel or more).

Kyle Schuant

  • Handlebar Stache
  • *****
  • Posts: 1314
  • Location: Melbourne, Australia
Re: Peak Oil and currently depressed oil prices
« Reply #18 on: February 05, 2015, 11:02:09 PM »
No, because when oil is even $150/bbl you start fucking up the economy. Things shut down, people lose jobs. "Demand destruction." Demand is reduced, so the price drops. Great, now we have cheap oil, but nobody has a job to drive to.

Even very poor countries - where oil is proportionally more expensive than we could possibly imagine - use lots of oil. But they're tooling around on bikes and motorcycles or on foot. They're not sitting alone in a car in a traffic jam burning fuel while not even moving.

ralfy

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Peak Oil and currently depressed oil prices
« Reply #19 on: February 07, 2015, 10:00:52 AM »
Also, the end of quantitative easing:

"The Oil Price Fall: An Explanation in Two Charts"

http://www.resilience.org/stories/2015-01-12/the-oil-price-fall-an-explanation-in-two-charts

There's also the problem of high marginal costs and rising capital expenditures.



rocketpj

  • Pencil Stache
  • ****
  • Posts: 964
Re: Peak Oil and currently depressed oil prices
« Reply #20 on: February 11, 2015, 12:59:44 AM »
US Dollar goes up when there is global insecurity.  Ukraine, Middle East, and most of all (from a capital perspective) the Euro is collapsing and nobody knows what is going to happen - so money flows to the USD and the dollar goes up.

When the US Dollar goes up, the price of commodities (which are almost universally trades in USD) goes down.  This is not a shock and has happened routinely over the past several decades.

So a rising dollar means the cost (in USD) per barrel goes down because a USD is worth more than it used to be.  Combine that with a levelling off of demand and you get a drop in the nominal price of oil.  However, the price for someone who starts out in Rubles or Rupees, or AUD, has fallen somewhat less than it has for Americans - who enjoy and completely take for granted their status as issuers of the global reserve currency.

So an American who makes $100K/year suddenly sees the 'price' of oil drop from $140 to $50 in a year.  Looks great to him, but of course in that time the USD has risen by 25% compared to the Euro.  The European is buying oil with a much diminished currency, so it isn't nearly as much cheaper for him as it is for the US guy.  Ditto most other currencies around the world - here in Canada our dollar is down almost 20% over the past few months compared to the USD, so oil is not as cheap for a Canadian making 100K.

Currency fluctuation is part of it, the other part is the flattening of demand with global turmoil and economic uncertainty combined with slowing growth- but those threads all feed back on each other.


Albert

  • Handlebar Stache
  • *****
  • Posts: 1244
  • Location: Switzerland
Re: Peak Oil and currently depressed oil prices
« Reply #21 on: February 15, 2015, 04:41:09 AM »
Swiss franc is also going up vs most currencies and we aren't all that happy about it. Good for foreign vacations or shopping trips, though. These things however just like oil prices are highly cyclical and volatile. It could easily be the other way around in 5 years and there is no way of predicting it.

 

Wow, a phone plan for fifteen bucks!