Peak Oil

Speaking of Kleiman, he points out that the futures markets are pricing oil in 2010 at $39/barrel.

There’s been a lot of interesting peak oil discussion lately – see this post by the Stephen Levett, the Freakonomics guy. Max Sawicky didn’t like it much.

I tend to side with the freaks on this one, though, and let me tell you why.All my West L.A. friends who are married and have kids have SUV’s. West L.A. – the media capital of the world (sorry, Manhattan) tends to lead trends that are wide in Middle America eighteen months later.

In the last two months, I’ve had dinner or lunch with four of my friends.

All four are in the market for hybrid Priuses to replace SUV’s except one, who’s trading in his Yukon for a Subaru.

When I was in the U.K. last month, I used car services to get from and to the airport.

The last leg, from Derby to Heathrow, had me get picked up by a sprightly guy in a new Ford Mondeo turbodiesel. A Mondeo is a mainstream car, about the size of a Honda Accord.

As we drove down the motorway, I watched the trip computer in amazement…we were tracking close to 80mph most of the time…and it showed a trip average of 52.5 mpg.

Then I realized that they were Imperial gallons, which reduced the mileage to 43.6mpg.

For essentially a full-sized sedan.

There’s a lot of room for more efficiency here.

32 thoughts on “Peak Oil”

  1. …and if Peak Oil is incorrect, we could be wasting billions over the next decade or so (on machinery that won’t last more than another decade or so after that).

    Not to metion that the supposed “break even” point for extracting crude from oil sand and oil shale is about $45 to $50 per barrel. There’s a lot more oil sand and oil shale out there than there ever was plain old crude oil, and huge amounts of it are right here in North America. Alberta has a huge amount of oil sand to play with, and there are (literally) *mountains* of oil shale in places like Colorado.

  2. Currently, the problem is mandatory child seats.

    A married couple with two primary school age children fills up all the available seating in any sedan or small, 2-row minivan or SUV. When child three comes along the economical parents have a problem. There is one SUV with a wide enough 2nd row of seats to accomodate three child seats, the Suburban. It is also the largest, hungriest SUV on the market. Short of a Suburban, because of child seat laws and air-bag safety concerns, any family with three or more children is required to have a vehicle with a third row of seating. Generally, these vehicles are gas-guzzling monsters.

    I have seen no hybrid or highly efficient vehicle that will accomodate more than two child seats. Have I missed any? That alone is a huge obstacle to sensible economic behavior (conserving gas) from largish families that would certainly prefer to be economical, expecially since children cost so much money to raise.

  3. Well, I’m the poster boy for this issue (three sons), and when I had to buy a three-row vehicle, I elected to buy a Honda Odyssey minivan (24mpg) in lieu of a Suburban (14mpg).

    It’s not hard…

    A.L.

  4. The “break-even” point for shale oil and oil sands is not a static number. Energy inputs for smashing, cooking, and refining a small amount of petroleum from a large amount of rock and/or sand are one of the biggest costs involved, so increasing oil and natural gas costs will increase shale/oil sands costs also.
    At some per-barrel-cost, shale and oil sands may “break even” but that number is a moving target.
    Conservation and efficiency investments, such as insulating homes and buying hybrid vehicles will almost certainly have better return-on-investment than chewing up Colorado’s canyons into huge tailing piles, even if no economic value is assigned to an undemolished canyon.

  5. Pangloss,

    I’ve not seen a lot of minivans with only 2 rows of seating. The vast majority have 3 rows (2 sets of captains chairs + a bench, for instance).

  6. I’m not sure how much I would dump on the carseats. When we were kids, a three passenger backseat was merely a design spec — everyone knew that a backseat could hold six to seven children easily.

    I can fit three carseats in my midsize sedan — an Oldmobile Intrigue, but nobody seems to have heard of Oldsmobile anymore either.

  7. Are there any requirements which would prevent a manufacturer integrating 3-across child restraints in a conventional rear seat?  The savings in child seats alone might make this very attractive to parents.

    I recall reading that Dodge once had integral child seats in a minivan, but discontinued them.  Maybe what we need to fix this problem isn’t auto regulations, but tort reform….

  8. I’m not sure that there are any design regs in the U.S. I think I remember reading a few years ago that Americans should find out if the car seat was approved for sale in Canada because it regulated design.

    It seems to me that the design problem with a 3-seater would be that that the children would outgrow it at various paces, exasperating the current problem that kids outgrow their car seat every year or two.

  9. Kleiman updated his link: “A reader points out that the $39 figure is seveal months out of date, and provides the currently correct $62.”

  10. The only problem not mentioned is the rising oil costs from higher demand; especially from china and India. This could also create a bidding war with expensive side affects (though probably only temporarily).
    A second, unplanable problem would be the loss of oil production in Iraq, Iran or Saudi Arabia. Although all 3 are unlikely; all 3 are also plausible.
    Even if oil prices stay flat (or slightly decline) it is going to be less ‘hip’ to sit in rush hour with a hummer.

  11. Can sombody with a commodity-trading background clarify something for me please:

    Is that $39/$62 value already discounted to present value?

    In other words, when I buy a contract for a barrel of oil in 2010, do I pay $62 for it (suggesting I think prices will actually rise fast enough to cover my opportunity cost) or do I pay a discounted price (suggesting I think oil will cost about $62 in 5 years, i.e., that it will drop in real price because of inflation)?

    To the extent that we think the markets can predict anything, the implications are quite different.

  12. Look at oil futures from 5 years ago and 10 years ago as predictions for 2005 oil prices and the only reasonable conclusion is that futures markets are nearly useless for predicting oil prices more than 1 year out.
    Of course market fundamentalists are religously bound to disagree, but the facts are not on their side.

  13. #6
    I can fit three carseats in my midsize sedan — an Oldmobile Intrigue, but nobody seems to have heard of Oldsmobile anymore either.

    GM stopped making Oldsmobile’s in 2004.

    The major stumbling block to higher efficiency vehicles has always been cost.

  14. OK, I’ll bite.

    First, on oil. We up here in New England use oil like you Californians use electricity. Gets pretty cold up here. I’m looking at a substantial increase in my heating bill this year, so I hear you. Most people supplement with gas or kerosene or wood heat. Now this is off the cuff, so I may get slammed for it, but the hoo ha over this reminds me of the way people get about the deficit. Being a child of the 70’s and early 80’s I remember well the energy crisis in the 70’s (which we did come out of), and I remember being told that my generation would be paying off Reagan’s deficit, when actually, within 12 years we had a surplus. So I don’t always get so excited about this stuff. I believe that we need to pursue alternative choices, but I haven’t seen a good one yet that works for the modern day middle class family, and whining that one doesn’t exist doesn’t help solve the problem, so I’m not going to go there, until I have a solution.

    Three years back we were facing a choice in new vehicles, our kids were then 5 and 6, we live in a pretty harsh winter climate, and safety was our primary concern.

    Maine State Law is 8years/80lbs for a child seat, and NO, I couldn’t fit 3 across the back of my Subaru Outback. Forget about if both kids wanted friends over, or god forbid we took our 2 dogs (80 and 100 lbs), AND the kids somewhere.

    Key word: sport UTILITY. I pay more taxes via the gas tax, because I use more, so I am penalized for choosing a “gas guzzler”, which I think is perfectly fair. I drive a Ford Expedition, it’s got room for the kids AND the dogs (sorry, doesn’t work in a minivan), and it’s got AWD/4WD, and it’s got Stability trac control, and airbag curtains for rollover protection for the kids spots in back.

    My ultra low emissions Ford Expedition (16-18mpg at premium/14 in town) is a hell of a lot cleaner environmentally than the 79 Volvos I see running around with the “save the earth” bumper stickers. That burns me up.

    Do I think it’s personally responsible to drive a Hummer on the freeway in LA for a single person? No. Do I think it’s their right, absolutely.

    And, while we are at it, why does everyone pick on SUV owners but never on the truck owners, which get worse mileage (my brother in law is a carpenter, his gets 8- 12 mpg) and which in New England are all over the roads here. I’ll tell you my theory, which is that truck owners are seen as middle class and it is assumed they need their trucks for work (many do), while SUV owners are seen as upscale selfish people who er, don’t care about the environment so much that they chose to piss off people by choosing an SUV over a minivan? There are plenty of reasons for peoples’ personal choices. Every person I met in California was horrified that I had an SUV, but conceded when I informed them of the dog/kid issue that there was no other way to do that. Other than not have dogs, or kids. Or have the govt issue recommendations on child seats not laws. Or not be a carpenter. Where does the line get drawn?

  15. Diesel gets higher miles per gallon. It’s a different fuel which is denser, almost jelly-like, and contains more energy per unit volume. However, it appears to have essentially unsolveable problems with NOX, SOX, and other emissions. Emissions from diesel are considerably higher than emissions from gasoline, and it’s essentially impossible to market a passenger car using diesel in California, and shortly thereafter in the rest of the country, due to emissions standards. The Bush Administration EPA recently promulgated new standards on low-sulfur diesel, due to come into effect in 2006, which helps for the diesel trucks already in existence and may increase the supply of ultra low sulfur fuel in the US. It still likely can’t make the California passenger car rules, though.

  16. As a child of the ’70s and ’80s myself, I am aware that basic numeracy was not a strength of public education in this country during my formative years. But, Kerry, this needs correction:

    Being a child of the 70’s and early 80’s I remember well the energy crisis in the 70’s (which we did come out of), and I remember being told that my generation would be paying off Reagan’s deficit, when actually, within 12 years we had a surplus.

    We are, actually, still paying off Reagan’s debt, and Bush Sr.’s, and Clinton’s, and Carter’s, etc etc etc. For a brief shining moment at the end of the 1990s, the Federal Government was not running deficits, but rather surpluses, which might have been used by wise leadership to help pay down our enormous national debt. Those surpluses are now long gone and our national debt is once more rising rapidly. Our current Federal debt is:

    $7,764,537,337,364.14 (or, was, in April 2005).

    For comparison, in 2000 it was:

    $5,674,178,209,886.86.

    All figures from the Bureau of the Public Debt:

    http://www.publicdebt.treas.gov/opd/opd.htm

  17. Stickler,

    Fair enough, but that’s not a numbers issue, it’s a linguistic one. We’re talking about interchanging terms of deficit and debt. You are correct that we have always had a national debt of course. But the federal deficit is a different matter, and I would disagree with you that the surplus should have been used to pay down the national debt.

    I would instead suggest that we could cut a whole lot of waste out of the governmental programs and bills to do that. But that’s some kind of utopian government that is never going to exist. All things considered I can’t complain, being an America has given me a chance for a great life. As AL says, a high class set of problems to have.

  18. PD Shaw is right – which undercuts a good part of my post, but not all of it, I think.

    I’ll suggest that conserving energy is starting to become “cool” which means we’ll start seeing a fair amount of it…

    A.L.

  19. “There’s a lot of room for more efficiency here.”

    “The major stumbling block to higher efficiency vehicles has always been cost.”

    Its not a technological issue. How many of you could drive a smaller car than the one you are using now.

    You don’t have to have new technology to replace the Suburban with a mini-van like AL.

    Is most of your driving commuting by yourself? How about replacing your Oldsmobile with a Honda Civic that gets 32/38 mpg in standard trim .

    More savings. Do not go to the grocery store 4 times a week. Use a grocery list. Save two trips.

    Thinking of moving? How about a house closer to work and school rather than one farther away.

    We like to talk about these problems as if there is a genie in a bottle somewhere that will make them go away. There isn’t. OTOH, we can solve these problems if we recognize that they are social, political and economic, and treat them that way.

  20. Armed Liberal,

    It’s true that we can go a very long way in terms of increasing efficiency. But that doesn’t mean peak oil has no cautionary value. The point is, the supply keeps decreasing, and there’s only so efficient you can get. Also, as has been mentioned, there are break-even points for resource extraction, meaning that eventually it requires more energy to find and extract the oil than you get in return. Once this point is reached, you fall off a cliff.

    How long can increased efficiency and improving technologies buy us time? My guess is that’s it’s extremely hard to say, especially when we have no idea what technological breakthroughs may occur. But this doesn’t mean that peak oil isn’t a serious phenomenon.

    If we ignore the problem, at a certain point, we may end up stranded, without the energy to run our society. My suspicion is that this will actually have to happen before truly serious efforts are made to find alternative energies. Are these sources even available? Or are they right around the corner? It’s impossible to speculate with any certainty.

    Thus, I think it’s worth erring on the side of caution and seriously investing in alternative energies. A sufficiently ambitious program would also have positive secondary scientific breakthroughs. The space program is my model here.

  21. Kerry, I looked at an Expedition when I bought my Odyssey, and turned it down because it didn’t have enough room. If you put up the 3rd row of seats, there’s only room for a few bags of groceries in the back.

    You may need 4wd in the rural Northeast; that’s certainly a legitimate point.

    But 62cf of carge volume for the Expedition maps to 66.5cf for the Odyssey…my Odyssey is in fact bigger inside than a full-sized Suburban.

    A.L.

  22. AL, point taken. In fact, I decided to go with the KIA when my family was faced with that decision. The mileage isn’t as good as the Honda, and I certainly love Honda, but the cost difference was an issue.

    Mileages are…
    SUV: 14ish mpg
    KIA: 19mpg
    Honda: 24mpg

    But what I really want is something with three rows of seats that gets 40-50mpg, a Hybrid that can plug into my house power to recharge in addition to reclaiming power from brakes, etc. Plus it should be a flexible fuel vehicle so if someone ever markets bio-diesel, recycled oil fuels, or an affordable ethanol I can use them. An engineering challenge? Yes, but not insurmountable or even particularly difficult. A marketing challenge? I can’t see how.

  23. The current most economical way to get to work is the modem.

    Since there seems to be no great rush to put more workers in home offices, then I’d have to say that gas prices are not excessively high.

  24. Pangloss,

    The marketing challenge is making it at a price you are willing to pay.

    The vehicle you want could be built for you today at a cost of around $1 million. I don’t understand why you are not jumping at the chance to get what you want. NOW.

    Industrial systems are not magic. They only seem so to the ignorant.

  25. We get these hysterias at every peak in the oil price cycle.

    About every 10 years. For at least the last 100 years.

    One of those peaks a long time ago influenced my career choice.

  26. “But what I really want is something with three rows of seats that gets 40-50mpg, a Hybrid that can plug into my house power to recharge in addition to reclaiming power from brakes, etc. Plus it should be a flexible fuel vehicle so if someone ever markets bio-diesel, recycled oil fuels, or an affordable ethanol I can use them. An engineering challenge? Yes, but not insurmountable or even particularly difficult. A marketing challenge? I can’t see how.”

    The perfect becomes the enemy of the good.

  27. Robert, it could be built for a lot less than a million. Stretch an Escape Hybrid to add a third row and change the fuel tubes and fittings for flexible fuel. Cost is the Escape Hybrid plus the custom work and fifty bucks to change the fuel tubes and fittings (plus labor). Oh, and I think the fuel injectors need to be upgraded too; add another thousand.

    Ford could start selling it in a year if they wanted to pursue it.

  28. “Robert, it could be built for a lot less than a million. Stretch an Escape Hybrid to add a third row and change the fuel tubes and fittings for flexible fuel. Cost is the Escape Hybrid plus the custom work and fifty bucks to change the fuel tubes and fittings (plus labor). Oh, and I think the fuel injectors need to be upgraded too; add another thousand.”

    Escape hybrids are getting around 35 MPG on average, and are retailing for around 30K if you go easy on options. Add say 4-5K for the extra materials and engineering on the stretched version. What you end up with is a 35K+ vehicle with 3 rows of seats that will get 30MPG at most once you factor in the extra weight. There’s a reason Ford isn’t doing this: They already have the Freestyle, which costs less and gets mileage in the high 20’s on the highway, and has a much less complicated and more reliable powertrain to boot.

    The notion that car companies are somehow holding out on us is ficticious. They are in the business of making money, and if they could sell hybrids/ flex fuel vehicles profitably they sure as hell would be doing it. The market is beginning to accept these vehicles, and we’ll see more and more of them. But what’s keeping this from happening faster isn’t the car companies, it’s people’s willingess to buy these vehicles.

  29. Regarding SUV’s: What bothers me about the SUV slamming is that it is only one factor of a person’s lifestyle that effects fuel consumption. If you drive an SUV and some self righteous bozo starts giving you a hard time, ask that person what type of home they have, how old it is, how they heat it, how well insulated it is, etc. Then ask them if they commute to work. If so, how far? Then ask them why they don’t move closer to work, why they don’t reinsulate their whole house, etc. Inevitably you’ll be able to corner them into either realizing they are also “wasting” fuel, or at least they will realize they never considered those other factors.

    My car has a V8, but I work at home and rarely drive. I burn way less fuel than a guy with a Prius who commutes 15 miles to work each day. Should I go around giving commuters a hard time for not caring about the environment? Please…

  30. (#21)

    _we have no idea what technological breakthroughs may occur._

    Japan may begin to produce hydrogen in nuclear plants in the next five to ten years. The process is already developed using termochemical cycles.

    I like this guy, “Sheik Yamani”:http://www.economist.com/opinion/displayStory.cfm?story_id=2155717. He dares to say what no other in the energetic sector does.

    “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.”

  31. Joe A,

    Yes, I saw that quote as well. But the thing with both finite resources and technology is that you can’t just draw a line from the past into the future. We’re in a different age. Humanity has the power to effect dramatic changes on its own habitat.

    There are things about petroleum that aren’t offerred by any other source of fuel, including nuclear, i.e. energy density and cost. I certainly don’t rule out the chance that technological breakthroughs can totally change the playing field. However, after what I’ve heard from a number of places, I get the impression that nothing we have nor anything right over the horizon is capable of replacing fossil fuels.

    Of course, we don’t have to go cold turkey on oil until we reach the break-even point, and that could be a while. But no matter how much time we have, my main concern is that given mankind’s nature, nothing will be done until it gets critically bad.

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