Subject: Re: [extropy-chat] Debate on Peak Oil

From: Samantha Atkins <[email-masked]>
Date: Mon, 25 Apr 2005 03:16:44 -0700

On Apr 24, 2005, at 10:19 PM, Hal Finney wrote:

> Samantha writes:
>
>> I find the case for Peak Oil and quite soon compelling.  But whether 
>> we
>> are nearing the Peak rapidly or not is in a way irrelevant.   If most
>> of the major players believe we are nearing Peak Oil and act
>> accordingly then most of the Peak Oil scenarios will quickly follow.
>> My take is that a lot of the world's current events are much easier to
>> explain if it is assumed most of the players believe Peak Oil is fast
>> upon us.
>
> I see several things that don't make sense though.  Why would oil
> producing companies and countries be wasting such a valuable asset?
> If they really think that oil will be worth $100-200/bbl or even more 
> in
> a few years, why sell it for $25 last year or $50 this year?  The 
> logical
> thing would be to hold onto the oil, keep it in the ground and profit
> from the tremendous price appreciation predicted by Peak Oil believers.

That would be a great way to starve world economies and invite 
invasion.   There is an equilibrium point that I suspect is carefully 
probed.

>
> And why don't the futures markets reflect this phenomenon?  You can buy
> or sell oil right now for December 2010 delivery for less than $50/bbl.
> If close study of the situation provides strong evidence that the oil
> will be worth many times that, speculators stand to make enormous 
> profits
> on the price rise.  Yet no one is bidding the price up, and from what I
> have read even Peak Oil believers generally are not putting their money
> where their mouths are.
>

Because much of the world is still in denial as to the actual 
situation.  Soon denial will no longer be an option.  It will not be 
pretty.   It will be worse because its reality was denied for far too 
long.   Humans have a near endless ability to ignore unpleasant news.   
Look at the tech bubble as a case in point.

Rationally we should be building out alternative energy options 
including nuclear on even the reasoned suspicion of Peak Oil.  Alas, 
rationality is difficult to come by in this species.

- samantha

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---

From: David <[email-masked]>
Date: Mon, 25 Apr 2005 22:22:19 +1000

Samantha Atkins wrote:
>> will be worth many times that, speculators stand to make enormous profits

Being in denial would only apply to those who deny the peak oil theory.
It doesn't explain why even the people who are pushing the theory
are acting as if they don't believe in it.
Personally, I think that within the oil industry Thomas Gold's theories
on primordial hydrocarbons are given a lot more creedence than is
publicly admitted. Claiming that fuels are running out, or not
arguing when greenies claim this, help to condition people to
expect higher energy prices (and future price rises).
-David
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From: "Brian Lee" <[email-masked]>
Date: Mon, 25 Apr 2005 10:36:04 -0400

>From: Samantha Atkins <[email-masked]>
>To: ExI chat list <[email-masked]>
>Subject: Re: [extropy-chat] Debate on Peak Oil
>Date: Mon, 25 Apr 2005 03:16:44 -0700
>
>
>>
>Because much of the world is still in denial as to the actual situation.  
>Soon denial will no longer be an option.  It will not be pretty.   It will 
>be worse because its reality was denied for far too long.   Humans have a 
>near endless ability to ignore unpleasant news.   Look at the tech bubble 
>as a case in point.
>
>Rationally we should be building out alternative energy options including 
>nuclear on even the reasoned suspicion of Peak Oil.  Alas, rationality is 
>difficult to come by in this species.
>
>- samantha

Isn't it unlikely that the entire world is in denial? Wouldn't some 
enterprising investor (including the Peak Oil proponents) slap a few million 
down in order to get 300% returns in 5 years? It seems that if anyone 
actually believed that oil would be at $200/barrel in 5 years that futures 
prices would be edging up there to reflect a valid present cost.

While we should develop alternative energy, oil is still the cheapest, 
cleanest form of energy available to us. Until it gets a lot more expensive 
there is little motivation to develop other energy sources.

Once oil production actually peaks (as opposed to predicted peaks) we will 
still have many years available to us as oil prices increase to develop 
alternative energy. It should take many, many years to get from peak to 
negligible production so I don't see an impending crisis.

---

From: Brent Neal <[email-masked]>
Date: Mon, 25 Apr 2005 10:51:50 -0400

(4/25/05 10:36) Brian Lee <[email-masked]> wrote:

> It should take many, many years to get from peak to 

The fault with this premise is that you assume that the crisis will be precipitated by exhaustion.  The propenents of the Peak Oil crisis state (convincingly) that the -reduction in production rate- will precipitate the crisis because of the vastly increased demand from the developing world.

B
-- 
Brent Neal
Geek of all Trades
http://brentn.freeshell.org

"Specialization is for insects" -- Robert A. Heinlein

---

From: "spike" <[email-masked]>
Date: Mon, 25 Apr 2005 20:40:41 -0700

> -----Original Message-----
> From: [email-masked] [mailto:extropy-chat-
> [email-masked]] On Behalf Of Brent Neal
> Sent: Monday, April 25, 2005 7:52 AM
> To: ExI chat list

Has there been sufficient consideration of the great potential
to cut oil consumption?  An unspoken blessing of the US
appetite for gas guzzling SUVs is that we have the potential
to cut way back in short order just by driving the less-used
second car.  

We fill stadiums with fans from all over the nation for our 
football and baseball contests.  We have motorhomes and
trailers that we tow to vacation spots, all at enormous
cost in petroleum.  All this could be switched off with
little real pain.  So a wasteful western lifestyle carries 
the advantage of providing lots of potential for belt 
tightening.  A reduction of oil production can be a 
relatively comfortable transition.  

What do you make of this article from the Chicago Trib?

spike

Ethanol prices in free fall even as cost of gas goes up 

 NewsStand - Sunday, April 24, 2005 
  
Chicago Tribune
Greg Burns

CHICAGO - Higher gasoline prices usually spell good times for producers of
ethanol, the fuel additive made from corn.

These days, however, ethanol makers are getting creamed. Even as oil prices
hover around $50 a barrel, ethanol has plunged by at least one-fourth since
January. For the first time in memory, a gallon at wholesale is going for a
dollar less than a gallon of gas at the pump.

The free fall threatens a slew of new manufacturing plants started up in the
rural heartland with the support of local farmers seeking gold in
grain-based fuel. And it is fanning tensions between ethanol producers and
Big Oil, their primary customer.

As a dozen additional facilities now under construction come on line in the
months ahead, overproduction promises to keep a lid on prices. Market forces
are holding in check a product that has boomed in recent years, due in large
measure to the intense support of farm-state politicians.

"There's too many plants going up too fast for the market to absorb it,"
said Todd Block, general manager of Adkins Energy LLC, a two-year-old
ethanol plant in Lena, Ill. "There's a big shakeout coming."

The low prices have hurt the entire industry, added Bernie Punt, general
manager of a plant in Sioux Center, Iowa: "It's to the point where it's
ridiculous."

To hear many analysts tell it, ethanol's problems are a simple matter of too
much supply meeting too little demand. Produced in the same way as
moonshine, ethanol is more easily made than distributed, they say, and the
industry's infrastructure is still catching up.

"We've had a tremendous increase in capacity and production. It just kind of
flooded the market," noted Todd Duvick at Banc of America Securities, who
recently cut his rating of industry leader Archer Daniels Midland Co. ADM
stock has fallen nearly 20 percent in a month as investors react to the
small-fry pouring into a business it once dominated.

Not everyone's convinced, however, that supply and demand alone account for
the low price. The heartland is filled with dark rumblings about
oil-industry conspiracies to keep ethanol down and petroleum pre-eminent.

"At a time when there's record high gas prices, they take all our profits,"
said Punt, who like other ethanol producers depends on oil giants to blend
his product into their gas. "Unless most of these oil companies are told by
the government they have to use it, they won't."

Monte Shaw of the Renewable Fuels Association puts it bluntly: "They're
ignoring an incredible bargain, and consumers are left paying higher
prices."

A spokesman for the oil industry branded that assertion "stupid" and "just
ludicrous."

"If somebody can make additional money blending ethanol, they will do that,"
said Edward Murphy at the American Petroleum Institute. To suggest
otherwise, he said, "betrays a certain economic ignorance."

Nevertheless, ethanol's political backers are taking action. House lawmakers
from Midwest states on Wednesday introduced legislation that would mandate
renewable-fuel consumption of 8 billion gallons by 2012, double the current
usage. The Senate already is considering a look-alike bill.

The proposal drew applause last week from Keith Bolin, a corn and swine
farmer in Manlius, Ill., who heads the American Corn Growers Association.
"The initiatives in this bill will greatly benefit America's farm families,"
said Bolin.

Ethanol emerged from the ferment of farm politics over the past two decades
to become one of the Midwest's signature public-policy issues.

For cleaning up smog, reducing dependence on foreign oil and funneling money
to an important constituency, ethanol can hardly be beat - as farm-state
politicians have come to recognize. What better way to get rid of surplus
grain than burning it in SUVs?

As a result, lavish government subsidies support production, including
direct federal benefits of 51 cents per gallon. Laws restricting the use of
a competing gas additive known as MTBE help even more. Indirect subsidies
that encourage overproduction of corn provide an additional benefit.

These days, corn is plentiful, so raw material prices are cheap. Given the
soaring price of oil, ethanol should be selling for at least 30 or 40 cents
more, and yielding handsome profits all around, its backers say.

Yet the economics of ethanol are complicated, and the market still adjusting
to the addition of 30 new plants in the past three years, bringing the total
to 83.

For starters, cheap corn does not necessarily equate to cheap ethanol. In
fact, one of the fuel additive's economic advantages for farmers is that its
price does not correspond to that of the farm commodity.

Lately, though, ethanol prices have failed to correlate as expected with
energy prices, either. Some analysts chalk it up to the perils of
forecasting in an immature market flush with mysteries. "What do we have to
compare it to?" asked agriculture analyst Joe Victor of Allendale Inc. "We
learn week by week."

One wild card in ethanol's profitability is freight rates. It's costly to
move the volatile brew from production sites scattered around the Midwest to
motorists in California and New York. Fuel surcharges and rail-line
congestion have added to the costs lately, producers say.

Another factor is the sale of byproducts from ethanol's manufacture, notably
grain protein used for livestock feed. Its value typically moves in lockstep
with corn, offsetting about one-third of raw material costs - but not
always.

None of that would matter if the oil industry would simply tank up, ethanol
boosters maintain. But that, too, is not so simple.

>From opening storage tanks and blending facilities to labeling pumps and
changing filters, switching to ethanol takes time and money, so oil
companies aren't jumping at every enticing price dip, said Ed Swinderman, a
vice president at Houston's Jim Jordan & Associates energy consultancy.
"You've got to overcome the inertia," he said.

Murphy of API noted that most oil companies use long-term contracts.
"They're not varying production based on what's happening in the spot
market."

Shaw, of the Renewable Fuels Association, smells a rat: "Oil companies thus
far have not reacted to the market. They're logistically capable of doing so
without changing a thing. It's very frustrating. It's a little bit hinky."

For the balance of the year, analysts expect ethanol prices to inch higher.
Swinderman is looking for $1.35 per gallon, which would be profitable for
the most efficient plants, but only break-even at best for the inefficient
or debt-laden.

Longer term, much depends on how quickly clean-air initiatives and other
government mandates kick in. Ron Miller of Aventine Renewable Energy Inc. in
Pekin, the No. 2 player behind ADM, expects less of a shakeout than some
others do.

"It's more a lost opportunity for the industry than real pain," he said. "At
some point, demand will catch up."

In fact, the pain may come in another fashion. As lawmakers seize the moment
to press for greater ethanol use in gasoline, it reduces America's
dependence on Saudi Arabia but increases it on Mother Nature.

"If you're a senator from the Midwest, you're beating the tom-tom," said
Allendale analyst Victor. "But what if we have a drought? Is there already
too much dependence on ethanol?"

---

From: Samantha Atkins <[email-masked]>
Date: Tue, 26 Apr 2005 01:37:55 -0700

> are acting as if they don't believe in it.

Market prices are set in large part on perceptions.  As long as the 
majority of players believe Peak Oil is not here yet  and what things 
that can be done to postpone that realization are still successful 
there would be little point in bidding the price up more than can 
currently be sustained.   This is not a perfect market so the market is 
not an accurate measure for what is true or likely true re Peak Oil.

> expect higher energy prices (and future price rises).

Thomas Gold's theories have no validation that I am aware of.  So, 
unless you have some there seems to be no reasonable relief in that 
direction.

- samantha

---

From: Samantha Atkins <[email-masked]>
Date: Tue, 26 Apr 2005 02:24:10 -0700

On Apr 25, 2005, at 7:36 AM, Brian Lee wrote:

> enterprising investor (including the Peak Oil proponents) slap a few 
> million down in order to get 300% returns in 5 years? It seems that if 
> anyone actually believed that oil would be at $200/barrel in 5 years 
> that futures prices would be edging up there to reflect a valid 
> present cost.

Please describe how you would play it if you believed it and had some 
cash.  I am quite interested.  Prices are edging up with constraints to 
ease the correction where we still can.  I don't personally think we 
will have that luxury for more than another year more, two at the 
outside.

It is really hard for most people to believe something really nasty is 
the case until it is majorly ruining their day.   Surely this is not a 
controversial statement in this group.   Hell, the majority of humanity 
denies evolution and all matter of things they would simply prefer not 
to believe.

There is more than a little economic and political pressure to keep the 
lid on this.  Our financial markets are fragile enough without official 
recognition that we are likely soon without adequate relatively cheap 
energy.  Our financials are much more fragile today than in the 70s.

> cleanest form of energy available to us. Until it gets a lot more 
> expensive there is little motivation to develop other energy sources.
>

Not for very long it isn't.  Some would argue that without the 
hysteria, nuclear is already much cleaner and in a saner environment,  
cheaper.

I don't think we can count on smooth ramps in price giving us plenty of 
time to substitute something different without incurring any major 
energy shortfalls and crises.  We must have Plan B actually in 
production if we are going to keep the energy on.   Not doing this is 
irresponsible and dangerous to our future.

> Once oil production actually peaks (as opposed to predicted peaks) we 
> will still have many years available to us as oil prices increase to 
> develop alternative energy. It should take many, many years to get 
> from peak to negligible production so I don't see an impending crisis.

That isn't the way it is likely to work.  The rate of production for a 
declining well falls of after its peak.  You can't get the same amount 
at all much less at the same cost per unit time.   Also some of our 
major fields could drop out of production entirely quite suddenly even 
without geo-political crisis.   For instance. the Saudi main field, 
Gharwar,  has been water injected for decades. If the water level 
reaches the wellhead the field goes non-productive.  This is not that 
easy to prevent indefinitely in an aged field. Gharwar accounts for 60% 
of Saudi production.  Its loss or even clear decline would sent a huge 
spike into oil prices and cause a lot of panic.    Gharwar produces 
mainly light sweet crude which is easiest to process into things like 
gasoline.  It takes different types of refineries to process different 
grades of crude.  Too little refinery capacity exists for some of the 
other grades that we will increasingly have to use.  New refineries 
take 4 - 10 years to come online.  Again the time to act is before the 
crisis is obvious if we are to insure adequate energy and thus 
financial, economic and political  stability.

- samantha