Peak Oil

[Bruce]

Yes, oil is running out. So? The decline will be gradual and will allow free market forces to identify and product substitute products.

Once whale oil was the main energy source used in lighting; once most of the whales were killed, prices for whale oil quadrupled in a short period of time, in today's dollars whale oil reached $35.00 a gallon. Technology and a free market economy found a solution to the problem after a short period of readjustment; I have no doubt that the same will happen in this case.

Less energy is being used to generate each dollar of GDP than previously. This trend will continue in the future. We are always finding more efficient ways to use energy all the time.

There are many alternative energy sources. A few are;

a) Turning garbage and agricultural waste to oil. Far fetched? Changing world technologies is turning turkey offal to 100 to 200 barrels of oil a day (in addition to natural gas, liquid and solid fertilizer and solid carbon) at their pilot plant today. (http://www.changingworldtech.com/inf...ases.asp?id=19)

b) Wind power and solar power is becoming more cost effective as the technology improves. Solar Panels no longer need to use glass and can be manufactured on plastic reducing their cost.

c) There are many alternate sources of carbon based fuels, some which have already been mentioned. These include tar sands, coal and methane hydrates.

d) There is a tremendous amount of energy stored in the oceans both thermally and kinetically that can be utilized to generate electricity.

e) A new generation of nuclear power plants that cannot “melt down” are on the drawing board.

There have been many doom and gloom reports from prognosticators throughout history that the human race is running out of one substance or another. Usually a higher price for a substance increases the supply as there is more of an economic incentive to look for more of the substance. In addition, an increased price allows other substances to be substituted for the original substance. I have no doubt this will again happen in this case.

In my opinion, I believe the increase in price that we are seeing now is related more to speculation than to any real shortage. When the price breaks lower, it may fall quite a bit before it stops.

8)

[Eagle43]

Good Post Bruce. Of course you are correct. Technology is awesome, and I don't believe we have any idea what will be going on in, oh say 2020 or 2025. I've heard that soybeans are being used now in gas pumps in Illinois, and perhaps other places. If that's true, then it's possible to grow a lot of the energy we need, if we make changes to vehicles. You are hereby apprised of one of Eagle's deep and profound maxims: "Follow the money." When it becomes profitable to use other sources of energy, we will. And contrary to popular opinion, the sky is not falling; it's merely readjusting. After readustment, we will be better off than now.

[haha]

Originally Posted by Eagle43

Good Post Bruce.* Of course you are correct.* Technology is awesome, and I don't believe we have any idea what will be going on in, oh say 2020 or 2025.* I've heard that soybeans are being used now in gas pumps in Illinois, and perhaps other places.* If that's true, then it's possible to grow a lot of the energy we need, if we make changes to vehicles.* You are hereby apprised of one of Eagle's deep and profound maxims:* "Follow the money."* When it becomes profitable to use other sources of energy, we will. And contrary to popular opinion, the sky is not falling; it's merely readjusting.* After readustment, we will be better off than now.*

So when you optimists are lined up at the craps table, and our comfortable society is rolling, the white-haired guy you see with a pile of chips on the "Don't Pass" will be me.

The whale oil analogy is completely inappropriate. At that time, whale oil was not the major source of energy. The sun was, as wind to power ships, and fodder to power horses and oxen. Whale oil was a niche product.

Of course today, we do have coal, and we do have nuclear. How many of you drive coal fired or nuclear cars?

One other thing, if we are worried about global warming now (and we should be, even if we aren't) we aren't going to like it much if coal takes over the portion of US electricity generation that is now done by natural gas, as gas is shifted to cover shortfalls in transportation fuel.

"I see a bad moon rising, I see trouble up ahead..."

Ha

[wildcat]

Sounds good Bruce but like HaHa wrote...how practical are your solutions near term? None of those to me are going to solve the problem over the next few decades and we can make $$ on oil plays until then.

[wabmester]

Originally Posted by HaHa

the white-haired guy you see with a pile of chips on the "Don't Pass" will be me.

Wait a minute, aren't you the same guy I saw at the "Don't Pass" line of the QQQQ table?* * How's that been going for you?* *

I can imagine lots of doom and gloom scenarios, but I always place at least half my bet on American Ingenuity.* * Besides, I like to ride my bike, and I live in a house that gets all-day sun (looking for an excuse to buy solar panels), a nice breeze (waiting for personal windmills), and sits right by the ocean (can't wait for these generator buoys).

[haha]

Originally Posted by wabmester

Wait a minute, aren't you the same guy I saw at the "Don't Pass" line of the QQQQ table?* * How's that been going for you?* *

One and the same!*

But that game isn't over yet; and anyway it has allowed me to maintain market exposure that given my attitudes I otherwise would not have done. Thus I've made money on balance, and pushed capital gains into a later year.

It's not perfect I admit. But then, nature has a long time horizon, and she grades on a curve.

Ha

[laurence]

O.K., so DW and I have applied to jobs much closer to home, with the pluses we originally talked about being more money, more time at home/smaller commute, and being able to have lunch together because they are less than a mile apart. But we happened to discuss the impending oil crisis this weekend, and realised we could bike to these jobs as well (about 5 miles). Hmmm.....bring it on!

[Bookm]

Originally Posted by wildcat

I don't think you understand how the fund works then

Been off line for a few days, apologize for returning to this so late. I should have been more specific RE PCRIX's holdings. * * *The fund holds those U.S. Treasuries I warned of as collateral against commodity futures. Since mutual funds cannot buy comodities directly, most simply purchase shares of those stocks involved in the production and servicing of commodities instead. PCRIX went off using another approach, buying derivatives that track commodity prices.

PIMCO has several years experience using this strategy, and they're actually trying to create a new and improved equal-weighted index for large-cap stocks, with the aid of Robert Arnott, editor of the FAJ (watch out VFINX). This fund will also use derivatives and prolly some form of bonds (indexed securities, notes, etc), similar to PSTKX, which Gross runs as well. We've discussed this approach a few times at NFB.

Bookm

[MJ]

One of the best things about my former job was that it was 9 gas free miles from my home by bicycle.

[Bruce]

Many Historical Economist consider the increase in whale oil cost and the shortages of whale oil as the first true energy crisis. At the time almost all interior lighting in the world was whale oil (sperm whale) based; there were no economical alternatives at the time. This whale oil burned cleanly and brightly and did not have a disagreeable odor.

Once the shortage and high prices of whale oil began, some enterprising company started producing Kerosene from COAL (yes you can produce a liquid fuel from a solid). Kerosene started to replace whale oil for interior lighting.

Other companies produced gas from coal (many of the older cities in the United States had a "Gas Works"conversion factory.

After Kerosene and coal gas started to be used, a major oil find in Pennsylvania in 1859 started the United States petroleum age. It because more economical to produce kerosene from oil then from coal so its use increased.

While I do not disagree with Hubbert and his bell curve of oil production, he does not take into account productivity improvements in extraction of oil; I think if these was put into his bell curve it would skew it to the left:

One of the first techniques that oil companies started using to increase the amount of oil that can be extracted from the ground were hydraulic fracturing and water flooding to drive more oil from the ground. Some other methods include CO2 injection, horizontal drilling, better computer 3 dimensional visualization technology. Maybe in the near future bacteria that will seperate oil from rocks will be injected down oil wells increasing the supplies evern more.

Those who forget history are doomed to repeat it!

In my arrogant opinion, oil may not continue to increase in price until all the oil in the world is used; it worries me greatly when I hear some people say that "Its different this time".

• The longer the price of energy (oil, natural gas, etc) stay high, the more exploration that will take place, increasing the supply.
  
  The longer the price of energy stay high, the more alternative energy supplies will become economically viable.
  
  The longer the price of energy stays high, the more people will begin to use less (the short term prices of energy are inelastic but longer term they become more elastic).
  
  The longer the price of energy stays high, the less economic growth that there will be;
  
  The longer the price of energy stays high, the greater the price of energy will fall; I would not want be an energy investor when this happens.
  

So before I would put too much money in energy stocks, I would look at the performance of energy stocks in the 1980's after a period of extended high prices during the 1970's.

Can anyone answer this question: How much of the price of oil being driven higher by speculation? Do some research; why is the price of finding a barrel of oil in the ground not rising as fast as the price of oil?

An aside to the energy crisis and new technology; LED lights are about to become a mainstream fixture in American Homes. These lights are already being used in traffic lights throughout the country; for every bulb replaced $75.00 dollars in electricity is saved a year (at 12.5 cents KWH). On four way traffic light has 12 bulbs; by switching this will save $900.00 dollars in electricity a year. 150,000 traffic lights throughout the country already have been replaced. They also save more energy if you add in that they do not need to be serviced and replaced as often (shipping of replacement bulbs, trucks driving to the lights to replace the bulbs, etc.). (You also are seeing this lights more and more in tractor trailers on the highways; the savings in this case are not for the energy but that they last longer reducing the amount of maintenance that needs to be done on these trailers.

I saw one estimate that if every light in the country was replaced by LED lights, an amount of energy equivalent to what the USA imports in oil could be saved. Technology is already working on the problem and coming up with economic solutions.

If energy prices stay high, this will hasten this change. LED lights are as bright as regular lights, use 80 to 90 percent less energy and last up to 100,000 hours (over 11 years). I am sure there are many more energy saving technologies on the way!

8)

[MRGALT2U]

Originally Posted by Bruce

Many Historical Economist consider the increase in whale oil cost and the shortages of whale oil as the first true energy crisis. At the time almost all interior lighting in the world was whale oil (sperm whale) based; there were no economical alternatives at the time. This whale oil burned cleanly and brightly and did not have a disagreeable odor.

Once the shortage and high prices of whale oil began, some enterprising company started producing Kerosene from COAL (yes you can produce a liquid fuel from a solid). Kerosene started to replace whale oil for interior lighting.

Other companies produced gas from coal (many of the older cities in the United States had a "Gas Works"conversion factory.

After Kerosene and coal gas started to be used, a major oil find in Pennsylvania in 1859 started the United States petroleum age. It because more economical to produce kerosene from oil then from coal so its use increased.

While I do not disagree with Hubbert and his bell curve of oil production, he does not take into account productivity improvements in extraction of oil; I think if these was put into his bell curve it would skew it to the left:

One of the first techniques that oil companies started using to increase the amount of oil that can be extracted from the ground were hydraulic fracturing and water flooding to drive more oil from the ground. Some other methods include CO2 injection, horizontal drilling, better computer 3 dimensional visualization technology. Maybe in the near future bacteria that will seperate oil from rocks will* be injected down oil wells increasing the supplies evern more.

Those who forget history are doomed to repeat it!

In my arrogant opinion, oil may not continue to increase in price until all the oil in the world is used; it worries me greatly when I hear some people say that "Its different this time".

• The longer the price of energy (oil, natural gas, etc) stay high, the more exploration that will take place, increasing the supply.
  
  The longer the price of energy stay high, the more alternative energy supplies will become economically viable.
  
  The longer the price of energy stays high, the more people will begin to use less (the short term prices of energy are inelastic but longer term they become more elastic).
  
  The longer the price of energy stays high, the less economic growth that there will be;
  
  The longer the price of energy stays high, the greater the price of energy will fall; I would not want be an energy investor when this happens.
  

So before I would put too much money in energy stocks, I would look at the performance of energy stocks in the 1980's after a period of extended high prices during the 1970's.

Can anyone answer this question: How much of the price of oil being driven higher by speculation? Do some research; why is the price of finding a barrel of oil in the ground not rising as fast as the price of oil?

An aside to the energy crisis and new technology; LED lights are about to become a mainstream fixture in American Homes. These lights are already being used in traffic lights throughout the country; for every bulb replaced $75.00 dollars in electricity is saved a year (at 12.5 cents KWH). On four way traffic light has 12 bulbs; by switching this will save $900.00 dollars in electricity a year. 150,000 traffic lights throughout the country already have been replaced. They also save more energy if you add in that they do not need to be serviced and replaced as often (shipping of replacement bulbs, trucks driving to the lights to replace the bulbs, etc.). (You also are seeing this lights more and more in tractor trailers on the highways; the savings in this case are not for the energy but that they last longer reducing the amount of maintenance that needs to be done on these trailers.

I saw one estimate that if every light in the country was replaced by LED lights, an amount of energy equivalent to what the USA imports in oil could be saved. Technology is already working on the problem and coming up with economic solutions.

If energy prices stay high, this will hasten this change. LED lights are as bright as regular lights, use 80 to 90 percent less energy and last up to 100,000 hours (over 11 years). I am sure there are many more energy saving technologies on the way!

8)

I agree with the basic thrust of this. The only exception is that I believe some time
in the future the incentives to create new "technologies" (by capitalism and private
investment) will be destroyed.
However, I will concede that energy sources will probably be among the last
victims.

JG

[Bruce]

JG,

What do you mean by the statement:

The only exception is that I believe some time in the future the incentives to create new "technologies" (by capitalism and private investment) will be destroyed.

I am not sure what you mean by this statement.

Bruce 8)

[Ed_The_Gypsy]

I am pretty sure that John has in mind government's infinite ability to kill the goose that lays the golden egg. Controls and restrictions on business and entrepreneurship have multiplied since the turn of the last century. In our country, at least. I understand that there are one or two former Workers' Paradises that have decided to try somewhat unrestricted capitalism with more success than their previous economic system provided.

Ed

[MRGALT2U]

Originally Posted by Ed_The_Gypsy

I am pretty sure that John has in mind government's infinite ability to kill the goose that lays the golden egg.* Controls and restrictions on business and entrepreneurship have multiplied since the turn of the last century.* In our country, at least.* I understand that there are one or two former Workers' Paradises that have decided to try somewhat unrestricted capitalism with more success than their previous economic system provided.

Ed

Pretty good, Ed.

JG

[JPatrick]

Originally Posted by Bruce

Can anyone answer this question: How much of the price of oil being driven higher by speculation? Do some research; why is the price of finding a barrel of oil in the ground not rising as fast as the price of oil?


8)

I have heard from decent sources that speculation accounts for as much as 20% of trading.
I don't know how the cost of finding compares with a barrel of oil, but for sure the price of finding is going up and fast.* More demand to find oil with a somewhat finite supply of rigs equals higher rig costs.* These guys feast when they can. Simple supply and demand once again.
Yeah, it's all pretty much a scam.

[greg]

"While I do not disagree with Hubbert and his bell curve of oil production, he does not take into account productivity improvements in extraction of oil; I think if these was put into his bell curve it would skew it to the left:"

For what it's worth: I read on a Yahoo message board that 3-D seismic, where they detonate explosives to map underground oil deposits, improves the ability to find it to 75%. 2-D seismic usually provides enough accuracy to find oil 25% of the time. Most of this work/improvement, between 2-D and 3-D, is done with computers. This is a significant productivty improvement. Drilling 1/3 of the holes you previously had to saves a significant amont of money.

Of course, the bullseyes are smaller and further away now than 20 years ago too.

--Greg

[Bruce]

Here is another news item about oil:

The United States Geological Service has publically stated that the United States will run out of oil in 9 years. This statement has caused mounting hysteria and has caused the president to act. Great Britain is also very concerned and has acted to secure more oil supplies.

Of course they said this in 1919!

Bruce 8)