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John_Gaunt

Peak Oil / Oil Reserves

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There are several books out concerning "Peak Oil" one is, "The Party's Over" (see reviews at amazon.com) Some books have a left/green bias, others a apocalyptic christian/right bias. Some don't seem to have political or religious slants. My question is what is the Objectivist response to this issue? Does it merit one?

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As someone who sat in the government-created gas lines of the 1970s and who listened to endless screaming predictions that the world would be out of oil within a decade -- i.e. the 1980s -- my reaction is: drill.

Actually, President Bush has a plan for solving the oil problem. It is here:Bush Plan for Oil

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The deeper answer is that the human mind is the ultimate resource -- and it's one we'll never run out of, as long as men are free.

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I am currently in college physics and my textbook is written from the perspective that within the next couple years we will face a massive energy crisis. It claims that we have nearly exausted out natural oil resources, coupled with increased oil consumption that within the next five years we will be out. I just don't buy it. It really bothers me that my physics textbook has such a horrible bias to it and I would like some hard facts to destroy the theory.

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Have you read any books by Julian Simon? I think his book titled "The Ultimate Resource" addresses the issue of shortage/abundance of natural resources. In summary: if one takes a long-term perspective, there are enough raw-materials for mankind to live well for many centuries to come.

Having said that, however, there *are* supply issues. First, there are short to medium term issues. For instance, it takes time to ramp up oil production, to build refineries, ships and pipelines. So, if demand outstrips the forecasts, prices can rise.

Also, there are the many laws that either limit the ability to produce (e.g. areas where drilling is not allowed) or raise the price of resources (I think ARB has some books about this).

Have you heard of oil from shale? This has fascinated me ever since Ayn Rand mentioned this in an essay. There are companies in Canada that use this method. It costs more than it cost the Saudis for a barrel, but there is no "shortage". At some price more oil can be produced than the world can use.

The scary part of your post was that you saw this propoganda in a physics book, and in college! I'm speechless.

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Thomas Sowell addresses this point in his book, Basic Economics, starting on page 205:

Present value profoundly affects the discovery of and use of natural resources. There may be enough oil underground to last for centuries, but its present value determines how much oil will repay what it costs anyone to discover it at any given time – and that may be no more than enough oil to last for a dozen or so years. A failure to understand this basic economic reality has led to numerous and widely publicized false predictions that we were “running out” of petroleum, coal, or some other natural resource.

In 1960, for example, a best-selling book said that the United States has only a 13-year supply of domestic petroleum at the existing rate of usage. At that time, the known petroleum reserves of the United States were not quite 32 billion barrels. At the end of the 13 years, the known petroleum reserves of the United States were more than 36 billion barrels. Yet the original statistics and the arithmetic based on them were accurate. Why then did the United States not run out of oil by 1973? Was it just dumb luck that more oil was discovered – or were there more fundamental economic reasons?

[snip]

How much of any given natural resource is known to exist depends on how much it costs to know. Oil exploration, for example, is very costly. This includes not only the costs of geological exploration but also the costs of drilling expensive dry holes before finally striking oil. As these costs mount up while more and more oil is being discovered, the growing abundance of known supplies of oil reduces its price through supply and demand. Eventually the point is reached where the cost per barrel of finding more oil in a given place exceeds the present value per barrel of oil you are likely to find there. At that point, it no longer pays to keep exploring. Depending on a number of circumstances, the total amount of oil discovered at that point may well be no more than the 13 years’ supply which led to dire predictions that we were running out. Only as the existing supplies of oil are being used up will rising prices lead to more huge investments in oil exploration.

[snip]

As more and more of the known reserves of oil get used up, the present value of the remaining oil begins to rise and once more exploration for additional oil becomes profitable. But, as of any given time, it never pays to discover more than a minute fraction of that oil. What does pay is for people to write hysterical predictions that we are running out of natural resources. It pays not only in book sales and television ratings, but also in political power and in personal notoriety.

In case you’re wondering what would happen if we began running out of a valuable resource in a capitalist society, Sowell answers that, too:

In some ultimate sense, the total quantity of resources must of course be declining. However, a resource that is going to run out centuries after it becomes obsolete, or a thousand years after the sun grows cold, is not a serious problem. If it is going to run out within some time period that is a matter of practical relevance, then this rising present value of the resource whose exhaustion looms ahead will automatically force conservation, without either public hysteria or political exhortation.

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EC    16

However, if there is no "crisis" to solve in a mixed economy such as ours the politicians would be out of a job and they can't have that, thus we are supposedly "running out" of oil. Even though the real culprits for the rise in the price of oil are environmental regulations and increased demand due to emerging markets. And now the left is trying to raise the gas tax even more because they are not recieving enough revenue to "fix the roads" because of a reduction of gas consumption due to high prices, caused by them! It is insane. They are not able to loot enough money due to their own restrictions so they propose to make the cost higher in an attempt to loot more. Don't they know that raising the price of gas even higher isn't the most prudent thing to do right now. It's like a downward spiral of nonsense.

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even if we did run out of oil, I think this would only cause a short-term energy crisis (say a few years?) We still have nuclear, wind, and solar power, plus biofuels. All except nuclear are renewable, and nuclear would last well into the future until we had to worry about energy again. it would just be the matter of switching everything over that would be the problem.

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Practical nuclear fusion will be a major turning point in energy production, if it can use the deuterium in the earth's oceans. There's a vast amount of deuterium there that can be extracted. The ability to use it productively would provide an energy capacity that would dwarf every other energy producing system used today, including nuclear fission.

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Practical nuclear fusion will be a major turning point in energy production, if it can use the deuterium in the earth's oceans.

Academically and scientifically, yes. Practically, I doubt it will have a big impact. Fission power plants still have the capability to last hundreds if not thousands of years and they will likely be cheaper than nuclear fusion.

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Check out Richard Heinberg's (author or first article) ethics:

What if oil were in fact virtually inexhaustible - would this be good news? Not in my view. It is my opinion that the discovery of oil was the greatest tragedy (in terms of its long-term consequences) in human history. Finding a limitless supply of oil might forestall nasty price increases and catastrophic withdrawal symptoms, but it would only exacerbate all of the other problems that flow from oil dependency - our use of it to accelerate the extraction of all other resources, the venting of C02 into the atmosphere, and related problems such as loss of biodiversity. Oil depletion is bad news, but it is no worse than that of oil abundance.
(emphasis mine)

I don't find abiotic theory very credible.

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I also read through the first article on "Peak Oil," which is also by Hienberg. Apparently the analytical methods, and ethical motivations, for the theory of peak oil come from one M. King Hubbert, "one of the world's best known geophyscists."

Hubbert was born in 1903 in central Texas, the hub of world oil exploration during the early 20th century. In a long career working with oil companies, government, and the geology departments of several top schools, Hubbert made many important contributions to geophysics, any of which would have been sufficient to assure him a prominent place in the history of geology. But his greatest recognition came from his studies of petroleum and natural gas reserves. In 1949, he calculated total world oil and natural gas supplies and documented their sharply increasing consumption. In 1956, he predicted that the peak of crude-oil production in the United States would occur between 1966 and 1972. At the time, most economists, oil companies, and government agencies dismissed the prediction. The peak occurred in 1970, though this was not apparent until 1971.

Hubbert then devoted his efforts to forecasting the global production peak. With the figures then available for recoverable reserves, he estimated that the peak would come between the years 1995 and 2000. This forecast would prove pessimistic, due to inadequate data and minor flaws in Hubbert's method. Yet other researchers would later refine both input data and method in order to arrive at more reliable predictions -- which would still vary from Hubbert's by only about a decade.

And now for the payoff:

We have, he believed, the necessary know-how; all we need to do is overhaul our culture and find an alternative to money. If society were to develop solar-energy technologies, reduce its population and its demands on resources, and develop a steady-state economy to replace the present one based on unending growth, our species' future could be rosy indeed. "We are not starting from zero," he emphasized. "We have an enormous amount of existing technical knowledge. It's just a matter of putting it all together. We still have great flexibility but our maneuverability will diminish with time."
(emphasis mine)

Call me crazy, but before analyzing the science of the matter, discovering the ethics driving these scientists is essential.

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From what I've read, Heinberg sounds like a radical environmentalist. You don't need to go too far past the opening statement on the home page of his site to see exactly where he's coming from:

"MuseLetter's purpose is to offer a continuing critique of corporate-capitalist industrial civilization and a re-visioning of humanity's prospects for the next millennium. Subjects range from global economics to religion to the origin of humanity's antipathy toward nature."

Sounds like the typical university professor.

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Their apparent anti-man ethics should make us examine and question their theories intensely. That doesn't mean they can never be correct. However, on issues like this they rarely turn out to be right.

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So, then, the question is: Does one write off scientists whose ethics are anti-man?

For the most part, yes. If their ethics are anti-man, then their conclusions will be designed to harm man.

More importantly, write them off if their epistemology is anti-fact, which is a corollary, since reason is pro-man they must necessarily reject it.

Edited by Inspector

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This is in response to Liri's link to a paper by J.L. Hallock presented here. (all emphasis below is mine)

This paper is presented as "facts?!?" I'm sorry, but after reading this, I'm afraid that the question "When will the publication of useless papers peak?" is more pressing than the "When will oil peak?"

The gist of this paper is a rehash of past prediction models with a few new wrinkles. Nowhere is the validity of the core model addressed. I presume it's because this is written to a specific audience that has already accepted the model as valid. The core mathematical model is the fitting of curves for past production of dried-up oil fields. This actually isn't science, it's just the fitting of data.

It turns out that this Hubbert guy I mentioned earlier noticed that the life of past oil fields went about as follows:

These models use mathematical formulation to represent the observed pattern of accelerated production followed by a peak (or sevearl peaks) when about half of the original resource has been extracted, and subsequently a progressive, probably exponential decline. This kind of analysis was pioneered by Marion King Hubbert, who in 1956 predicted accurately that oil production in the lower 48 states of the US would peak by 1970.
This is the extent of the validation of the model. Just becuase the guy predicted one point on a curve, out of who knows how many predictions he made, the model is deemed accurate. Perhaps you can present a paper that presents this model and makes a case for its validity. I mean, there appear to be two sections of the production curve of a particular oil field: the growth and the decline seperated by a peak. Hubbert seems to have backed out typical growth rates, typical peaks, and typical decline rates from past data. But what is the range of these numbers, what guarantee do we have, without knowing the science underlying this data, that every oil field will follow these production trends? Are we to take the fitting of trend lines to data as accurate predictions?

Even if we did have confidence in the rise and decline characteristics of production curves, one has to be able to predict the peak of an oil field before it reaches it. Indeed, this is a major problem admitted by Hallock:

Hubbert's basic model remains very attractive to many (but not all) oil analysts, and in the past decade a number of "neo-Hubbertarians" have made predictions of the timing of peak production that vary from about 2002 to 2030. The majority of these studies assumed an ultimately recoverable volume (often termed extractable ultimate resource or EUR) for the world of roughly two trillion barrels of oil (TBO) [9-14]. Some of these studies assessed production at the world level only, while others made predictions for the world based on country-level analysis.
So the peak is assumed?!? Where is the validation provided for any assumed peak value?

So what did they do in this paper? They took all the published peak (EUR) values, used the Hubbert basic model, and published "predictions":

We developed scenarios based on three different country-specific estimates of EUR: low, medium and high, that sum to a global total of 1.9, 2.9 and 4.0 trillion barrels of recoverable oil (TBO), respectively. These estimates of the EUR represent the range found in the literature from the lowest estimates fo the neo-Hubbertarians (which is somewhat lower than the USGS's 95% confidence value of 2.3 TBO) to the mean value of USGS to their 5% confidence value.
This is called factual? Rehashing the peak values presented in the literature is considered publishable?

They at least go on to admit that they pretty much can't validate any of the assumed peak values:

Which of these conventional oil inclusions or exclusions are appropriate is a contentious matter amongst oil investigators. We assume the published EUR estimates (USGS and otherwise) to already include manifestation of possible future advances in recovery rates. We have not ourselves assessed the technological feasibility or likelihood of achieving any average level of world reserves growth over time.
So, the clincher: we are presented with a model that has succeeded at predicting one point on a curve (designated by the peak US oil production at a specific point in time); we are not told whether the model predicted the growth and decline shape, we are not told if the model has successfully done anything beyond this one prediction, and we are told that the peak values used in this analysis are assumed from the literature, without a scratch of validation. This is factual?!? My advisor would have thrown me out of his office had I modeled a physical behavior using a curve fit that once predicted one point on a plot, and an assumed extreme point, and presented it as factual.

Look, I'm not against investigating when oil will peak, if it will peak, etc., but I ask that people please use science and not Microsoft Excel trend-line fits to make predictions based on an assumed extrema, and probably assumed growth rates.

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So, the clincher: we are presented with a model that has succeeded at predicting one point on a curve (designated by the peak US oil production at a specific point in time); we are not told whether the model predicted the growth and decline shape, we are not told if the model has successfully done anything beyond this one prediction, and we are told that the peak values used in this analysis are assumed from the literature, without a scratch of validation. This is factual?!? My advisor would have thrown me out of his office had I modeled a physical behavior using a curve fit that once predicted one point on a plot, and an assumed extreme point, and presented it as factual.

This is the point at which I assume a smug smile. :) Felipe, are you beginning to see what I mean?

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I am. Is there a prediction out there based on science? One that amounts to: "Based on scientifically verifiable sizes, densities, etc., of specific oil fields today, given current pumping technology, given no new drilling, given no improvements in pumping technology, we have X barrels of oil left that will run out on such-and-such date given current pumping rates." This paper also says:

While the world does contain large amounts of unconventional oil resources that can substitute for crude oil, the substantially higher capital and production costs...[means that we are not including unconventional oil in our analysis.]
So, any prediction that has any semblance of certainty would have to presume that there is no technological growth, no new oil fields found, no accounting for the "large amounts of unconentional oil resources," etc., and it would amount to: the oil fields we are pumping out of today have X amount of barrels left and will run out on such-and-such date given current pumping levels. This would give us firm planning grounds. If, given some reasonable predictions on demand (call it Y), Y exceeds X, then we would have to plan for something in advance. But I don't know that there is anything out there but statistical masturbation.

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Clearly, by reading the article, they have included probable reserves as proven. So this would include areas like ANWR, I assume. In any case, I asked Charlie a few months ago if ANWR would make much difference over the long haul, and he said no.

Assuming the authors have things straight, they also state that public information on the size of the reserves is not reliable and there are large discrepancies in industry data.

Anyway, they are very modest throughout the paper in assuming that the predictions could be wrong. I don't know the science behind figuring out how large an oil field is, but I presume if those data were available they would have used them. I suppose that it why they give a range between world supply peaking between 2004 and 2037. Obviously this is a huge range.

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Ok, For Peak Oil Scenerios, It was my understanding that the problem was more or less a technological/economic one. I will more or less attempt to report in plain language what the theory is.

For all Oil Fields, it stands to reason that the oil easiest to get out of the ground will be pumped out first, then the oil that is second most easy to get out of the ground, then third, etc, etc.

The Same can be said of Oil Finds. The Oil that is Easiest to find will be the first tapped, the Oil that is second easiest the second, and again so on and so forth.

The Economic Problem is, after a while it will not be rational and or cost effective to find any more oil, that is when the total costs of pumping one more barrel of oil exceed the price of that barrel.

Now, supply and demand can only take care of the situation for awhile, with costs increasing and the price going skyward, before oil reaches a price that consumers are no longer willing to buy it at.

And with the huge energy demands of our society, Energy is Life. A popular "factoid" of advocates of peak oil is that we are now more or less literally eating oil. That is, that the total non-renuable (non-solar) energy input from growth, manufacture, and transportation more or less equals the calorie output of whatever foodstuff is being manufactured. Energy interruption would be a death nell for the entire system.

End Report

The Problems with this scenario is that technology is assumed to be a constant, or at least (and most generously to the theorizers) develop at a constant rate. Say someone, lets call him Ellis Wyatt :), makes oil much, much easier to find and to pump, then the model is broken and the peak pushed back 20 years.

Also the problem is a demand side one as well. The model assumes an almost constant demand for fossil fuels into the near future. Development of alternative power sources can stem demand for fossil fuels, and eventually replace them like Rock Oil (petroleum) replaced Whale Oil.

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