
Why Peak Oil Will Never Lead To $500/bbl Crude Oil - cwan
http://www.chrismartenson.com/forum/why-peak-oil-will-never-lead-500bbl-crude-oil/38937
======
heyrhett
Why is bbl the abbreviation for "barrel"?

Ahh, wikipedia knows: The "b" may have been doubled originally to indicate the
plural (1 bl, 2 bbl), or possibly it was doubled to eliminate any confusion
with bl as a symbol for the bale. Some sources claim that "bbl" originated as
a symbol for "blue barrels" delivered by Standard Oil in its early days; this
is probably incorrect because there are citations for the symbol at least as
early as the late 1700s, long before Standard Oil was founded.

~~~
logic
[http://seekingalpha.com/article/18636-where-does-
that-2nd-b-...](http://seekingalpha.com/article/18636-where-does-that-2nd-b-
in-the-abbreviation-for-crude-barrels-bbl-come-from)

Quote:

In the early 1860's, when oil production began, there was no standard
container for oil, so oil and petroleum products were stored and transported
in barrels of all different shapes and sizes (beer barrels, fish barrels,
molasses barrels, turpentine barrels, etc.). By the early 1870's, the
42-gallon barrel had been adopted as the standard for oil trade. This was 2
gallons per barrel more than the 40-gallon standard used by many other
industries at the time. The extra 2 gallons was to allow for evaporation and
leaking during tranport (most barrels were made of wood). Standard Oil began
manufacturing 42 gallon barrels that were blue to be used for transporting
petroleum. The use of a blue barrel, abbreviated "bbl," guaranteed a buyer
that this was a 42-gallon barrel.

~~~
fhars
That quote doesn't explain why the abbreviation was used about a hundred years
before stabndard oil introduced the blue barrel, as claimed by the wikipedia
quote in the comment you ansered to. In fact, your quote just reiterates the
claim that wikipedia said was probably false, so to make your argument you
should instead show that the citations from the late 1700s are wrong.

EDIT: This will be difficult, as it is quite easy to find citations for "bbl
oil" from before 1850 using google books, the first I found was on p. 239 of a
book called "Railway engines and cars" from 1832. So the blue barrel legend
can be firmly laid to rest in peas.

~~~
anigbrowl
_firmly laid to rest in peas_

Ha! The doubled b in bbl is likely an outmoded typographical convention - as
in _book citation_ p437, and also pp495-500. I like such archaisms but agree
it's a bit confusing and inconsistent with other conventions - eg we don't
talk of $5 bbn to mean five billions.

------
gnosis
Executive summary:

The author expects _"government intervention of some kind to occur before
prices get much above $200/bbl."_

~~~
SanPedroGrouch
_government intervention_ is of course a euphemism for rationing. Rationing
creates shortages which in turn causes steeper rationing, with the result
being the economy slows to whatever pace is consistent with the limited supply
of energy. For the USA that looks to be a lonnnng way down from here.

~~~
jbooth
A combination of subsidies and taxes could align incentives well in advance
without resorting to outright rationing.

~~~
ars
You can tax oil, if we are short of oil. But if we are sort of energy in
general, then taxes won't work.

Energy is the input to every single thing humans do. If you tax energy then
the price of _everything_ will go up.

You can't build a wind turbine without energy. If wind turbines produce less
energy than it takes to make them, you are stuck.

As it turns out wind turbines produce more, but not a lot more. Solar cells
produce less.

Even nuclear power just barely produces more than the energy used to build the
plant (at least in the first 10-20 years).

~~~
jbooth
Tax oil, subsidize renewables and nuclear construction (but not operation).
That'll do a lot towards building in the incentives that are currently being
lost to free-rider and tragedy-of-the-commons.

~~~
ars
You didn't understand what I said.

Renewable and nuclear power today, consume more energy in the making of them,
then they produce (over 10 to 20 years).

Subsidizing them won't help - there isn't enough energy available.

If you take the long view, more then 20 years, the picture changes, but few
renewables last that long. Only nuclear does.

But since no bank wants to loan money with a payout of longer than 20 years,
nuclear doesn't get built. That's why they talk about loan guarantees for
nuclear power.

There is no free-rider or tragedy-of-the-commons going on here.

~~~
thaumaturgy
> _Renewable and nuclear power today, consume more energy in the making of
> them, then they produce (over 10 to 20 years)._

I don't think that's true. [1]

> _But since no bank wants to loan money with a payout of longer than 20
> years, nuclear doesn't get built._

That's an oversimplification. There are numerous reasons why nuclear isn't
being built, not the least of which are the various NIMBY and other
environmental concerns, and the fact that things like Thorium reactors have
yet to regain popularity due to the push for weapons-grade-yielding nuclear
technology over the last several decades.

[1]:
[http://www.eoearth.org/article/Energy_return_on_investment_%...](http://www.eoearth.org/article/Energy_return_on_investment_%28EROI%29_for_wind_energy)

------
RyanMcGreal
It's more basic even than this. Market demand for oil collapses (read:
recession) long before it gets anywhere close to $500/bbl.

~~~
w00pla
> Market demand for oil collapses (read: recession) long before it gets
> anywhere close to $500/bbl.

Above $80 a barrel, alternative fuels (such as liquid fuels from coal) becomes
profitable. I sincerely expect that this will expand extremely rapidly in the
next 15 years.

~~~
RyanMcGreal
When demand becomes tight, the price driver is not so much the _cost to
produce_ as it is the _rate of production_. Can we produce five or ten million
barrels of oil-from-coal a day? Can we replace a two or three percent annual
drop in oil production rates through some combination of conserving and
replacement _without_ recessionary demand destruction? I'm not so sure.

~~~
nostrademons
We'd switch to more mundane substitutes long before oil got to $500/bbl.

Just the spike to $130/bbl in 2006 saw people switching away from SUVs to
Priuses in droves. If that were sustained for any length of time, everyone
would be driving a plug-in hybrid to work. The technology exists today, and
the production capacity would ramp up pretty quickly.

If every switched from a 20mpg car to a 50mpg car where the first 100 miles of
each trip was free, it'd more than make up for anticipated oil production
declines over the next 50 years.

~~~
RyanMcGreal
That might work if the developed world was driving the increase in fuel
consumption, but that hasn't been true for quite some time. North American oil
consumption is already going into decline, but global demand pressure is
coming from the developing world - China, mainly, followed by India - as well
as all the oil-producing countries with nationalized industries and
artificially low domestic prices (Venezuela, most of the Middle East).

Those consumers will not be buying plug-in Priuses; and with consumption
growing rapidly in the oil exporting countries, once they pass their national
production peaks their export rates will decline faster than their own
production rates.

~~~
nostrademons
They have the same price constraints that the developed world does. If oil
goes up to $500/bbl, we'll see one of three things happen.

1.) They'll substitute more efficient yet more expensive cars for gas
guzzlers, as the TCO of a gas guzzler goes up.

2.) Efficient, cheap, yet _small_ cars will start being developed for emerging
markets. (This is already happening a bit - consumers in Beijing tend to drive
much smaller cars than consumers in Houston.)

3.) They won't buy cars at all.

There's no innate reason beyond price why consumers in developing companies
can't buy plug-in hybrids. And if price is the governing factor, they simply
won't buy cars as well. Either way, it puts downward pressure on oil demand
and hence serves to limit prices.

------
patrickk
“The Stone Age did not end for lack of stone, and the Oil Age will end long
before the world runs out of oil.” Sheikh Yamani, Saudi Oil Minister,
1962-1986

~~~
cookingrobot
That's poetic - but is it true?

~~~
patrickk
We've been here before, too, except before it was food shortages and 100s of
millions dying that were being predicted in alarmist tones:

<http://en.wikipedia.org/wiki/The_Population_Bomb>

And the solution, which apparently now sustains one third of the world's
population:

<http://en.wikipedia.org/wiki/Haber_process>

My prediction, is that like before, science will solve the problem and this
will all disappear into the memory. Man's capacity to wipe itself out is far
outpaced by it's ingenuity to sustain itself.

Then: Cold War, oil shocks

Now: Terrorism, oil shocks

History always repeats itself.

------
klochner
Two things:

a) oil != gasoline <http://www.ranken-
energy.com/Products%20from%20Petroleum.htm>

b) Demand destruction doesn't preclude $500/bbl crude, it just means that when
oil hits $500 there won't be nearly as many products that are dependent on it.

------
dinde
I got pretty into peak oil circa 2006, when peak was supposedly already
occurring or was going to occur by 2008. It will happen eventually, but I'm
not going to get into playing this guessing game again.

~~~
RyanMcGreal
No need to guess. Oil production has been flat around 85 million barrels a day
for the past four years.

~~~
dinde
Demand has been lower due to the global recession -- there is no indication
that oil production can't go higher than ever before, once demand starts
picking back up.

~~~
RyanMcGreal
And what do you think triggered the global recession, if not an oil price that
spiked to an economy-busting $147/bbl in the two years after production peaked
at 85 mbpd?

~~~
CWuestefeld
Ummmm... I kind of thought it was the combination of a US housing bubble in
combination with poor risk management in the financial industry particularly
respecting mortgates.

~~~
RyanMcGreal
[http://research.cibcwm.com/economic_public/download/soct08.p...](http://research.cibcwm.com/economic_public/download/soct08.pdf)

------
robryan
I think the Internet will do a lot to lessen the effect of this when it does
happen. People who can work from home probably will, when it costs a quarter
to half your days wage just to make it to work it will offset any benefit you
get by having a team in the same building.

Also online distribution, things like books might become prohibitively
expensive in the physical form and drive everyone to ebooks, all creative
products really.

~~~
synnik
But the electricity powering the Internet is also somewhat oil-based,
depending on exactly what fuels you local plant runs. It may not impact the
individual homeowner, but the costs of the data centers and network providers
will increase alongside oil prices.

~~~
philwelch
Very little electricity is petroleum based anymore. Depending on region it's
mostly coal, hydro, or nuke.

~~~
synnik
It depends entirely on pricing. Most "coal" plants switch between coal and
natural gas based on current market trends. And even if coal is burned, the
fuel to get the coal to the plant is petroleum-based. There are a lot of
complexities involved. Of course, working in the natural gas industry, I only
have limited knowledge. :)

------
strebler
I would like to see some sources for the "more than 100 years of oil left"
claim. If it's at all based on 'public reserve levels' declared by oil
producing countries, those are basically totally fabricated.

[http://www.telegraph.co.uk/finance/newsbysector/energy/oilan...](http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7500669/Oil-
reserves-exaggerated-by-one-third.html)

In any case, it's the first claim in the article, he should back it up.

------
motters
I wouldn't be so confident about naming a particular ceiling price, but as oil
becomes more expensive demand will fall and individuals and industries will
move to other sources of energy. In particular within the next 5-10 years it
looks as if electric vehicles are going to be a growth area, mainly driven by
rising costs on conventional fuel.

~~~
ars
Electricity is not a "source of energy". If the price of oil goes up the price
of electricity goes up too.

There are no other sources of energy that are really practical today. Although
some are close.

~~~
motters
The price of electrons is not necessarily linked to oil production, since
electrons can be produced in ways which don't require much or any oil.

There are other eminently practical energy sources available. The main issue
is that these have historically not been price competitive with oil. As oil
extraction becomes more difficult the economics of energy will change.

~~~
ars
I don't think you realize how interconnected, and interchangeable all forms of
energy are. Not being price competitive with oil means it costs more energy to
make then it produces.

If something made more energy than it costs to make it (over 10 to 20 years),
then it would be built. Why not build it? It's guaranteed profit.

But, in actuality there isn't anything like that. Every single form of energy
is being tapped to the maximum possible. It's the nature of capitalism.

If the price of oil went up, the price of everything goes up. If the price of
raw materials goes up, it costs more to build some alternate form of energy,
so you get nowhere.

~~~
motters
The idea that capitalism is either a natural or optimal system doesn't stand
up to much serious scrutiny. If you're referring to "cost" in terms of energy
cost then yes there is always some amount of energy which needs to be put in
to get energy out, with the result being the net energy gain.

For other forms of energy, such as bio-fuels, the net energy gain is presently
smaller but this does not invalidate these technologies. As the complexity of
extracting oil increases its net energy gain will reach parity with other
energy sources, and then begin to lag behind them. The economy - with all its
foibles - will eventually back the winners out of pure necessity.

------
lionhearted
> Societal complexity is a function of excess energy availability

That's true in it's most trivial sense, and false in any non-trivial sense.
Quick examples - Qatar, Venezuela, Japan.

~~~
randallsquared
Your Qatar and Japan examples, at least, make his point: the complexity of
those cultures reflect the resource conditions in which they developed. Not
sure about Venezuela. Japan, in particular, was the only place in the world
where hunting and fishing could support large settled populations, if I
remember my Jared Diamond correctly.

~~~
WildUtah
_Japan, in particular, was the only place in the world where hunting and
fishing could support large settled populations_

Louisiana was more productive than Japan for wild fish and fowl. (Largely
destroyed now by bad planning, pollution, and man-made environmental
disasters)

------
Sapslzr
"Collapse" a pretty good documentary on the subject

------
pw0ncakes
No one with any credibility actually believes he can forecast the price of
oil.

Oil is very inelastic in the short term, which is why small drops in supply
lead to massive price increases. The long-term effect of unavailable or
expensive oil will be "demand destruction"-- many of those who currently use
oil will either move to alternatives or go out of business-- and political
fallout with unpredictable results.

~~~
edj
People investing in futures do this every day, and some of them are most
certainly credible. Southwest Airlines, e.g., seems to be pretty good at
saving a buck with aviation gas futures (though that is a step removed from
crude oil).

~~~
hugh3
_People investing in futures do this every day, and some of them are most
certainly credible._

If it were possible to do significantly better than blind luck in speculation
about future prices then there'd be nobody around to take the other side of
the contract.

~~~
yummyfajitas
Speculators usually earn a premium over what they would get via blind luck. If
they didn't, there would be no speculators.

The reason why trades occur at all is that not everyone is a pure trader.
Hedgers (e.g. Southwest) trade futures to reduce business risk rather than to
make money. They tend to make a net loss on trading but earn back a greater
amount of money via their core business.

------
izend
We will reach $500/bbl eventually after the US dollar is hyper inflated away.

~~~
timcederman
I keep hearing about how hyperinflation is about to hit. Surely in an
efficient market, if this was truly likely, its effects would already be being
felt? What is the rationale behind its prediction?

~~~
philwelch
Goldbugs think any fiat currency will eventually hyperinflate. Note this is an
unfalsifiable hypothesis.

------
DanielBMarkham
Dick Cheney returns to political power as an American Hitler laying waste to
sovereignty in the Middle East!

Very imaginative. But not very likely.

I think peak cheap oil is likely within the next decade. What a person thinks
happens after that says more about the person than it does the future.

