worker4youth

Just finished this book. Greenspan devotes a whole chapter to oil. His view is less dooms-day than most here: He believes that market forces will eventually do away with oil far before it ever disappears from the ground, and his optimism for the amount of oil left in the ground is high. He says at current productions, the there is enough oil to sustain world economic activity up to 130 million barrels a day as projected in 2030, as long as OPEC allows it. He also says that environmental reasons are not enough to disrupt economic activity. The sad reality (and I agree with him) is that serious shifts away from oil as an energy source will only happen when it makes a serious dent on economic activity. So far, $100/barrel oil has not really fazed American, let alone world economic progress.

Anyway, as a self-proclaimed Libertarian-Republican, he seems suggest that market capitalistic forces will eventually solve the world energy crisis, as long as it's allowed to more or less operate freely.

Thoughts?

crtreedude 

He is sniffing the glue from his reports. Cheap oil has built our civilization for the last 200 years - and our current replacement is almost nothing. It is like a kid who borrows his dad's car and then notices the tank is getting low - so slaps the solar cell from his calculator on the roof thinking it will make a difference.

For example - currently 85% of the energy consumed by the USA is fossil fuels. Guess what happens as it starts to dry up.

timmhaan

i think $100 oil is just starting to really harm our economy. I think there was a "grace period" where people could absorb the costs in creative ways, but as time goes on there is really no hiding from it.

because our dependence on oil affects so much, rapidly rising prices is similar to run away inflation.

KrisPistofferson

Greenspan is an old Ayn Rand groupie, and those people tend to view the Free Market with religious awe, at the same time dismissing ecology as "mysticism," so, he's probably not the one to ask.

I do agree that technology will ultimately find a way to replace fossil fuels, but I doubt the transfer will be as seamless and Star Trekkish as Greenspan makes it sound. On the other hand, I don't think it will be Beyond Thunderdome like James Howard Kunstler predicts, either. But none of us are prophets.

spider-man

I disagree with this.

timmhaan

to give greenspan credit - another chapter in his book talks about how long it takes to implement new technology. he cites the example of farmers using world war II era equipment for a really long time even though better technology exists. he realizes that inventories need to be worn out (old cars, trucks, etc.) before people will invest in something new. in other words, gas powered cars and trucks will still be with us for a long time until they truly run their course.

cerewa

This is also something that is taught in intro-to-economics classes. (or at least the one I was in)

Although, who knows, maybe it was greenspan that got them to teach this idea.

So-called stag-flation (inflation without economic growth) could certainly correlate with a tightening of the oil market.

ChipSeal

Your description of his position must be confused, because this assertion makes no sense. It is conflating two different concepts, rate of extraction, (Flow) and reserves. (The amount of recoverable oil in the ground.)

There remains loads of oil reserves. Production right now is stagnate or declining. Consumption is now equal or greater than production and will inevitably overwhelm production in the next few years- this is why oil is so expensive! Our immediate problem is not how much oil there is, but how fast we can extract it.

In the month of June 2005, world oil production averaged 88 million barrels of oil a day. In no month since then has world oil production averaged such a high rate of flow. In other words, new oil wells have not been able to overcome the natural decline of old wells. (It can take as much as five years to find and bring into production new wells, so the current high price of oil will likely result in new production records.) But now even the CEOs of many big oil companies scoff at the idea of 130 million barrels a day production as being possible. Saudi Arabia has promised for over three years that they will raise their production, but they have not done so. It is widely believed that it is because they cannot raise production, rather than they will not.

It is hard to believe that there are producers out there that are holding back production with oil at these prices.

Meanwhile, the largest single consumer of oil, the USA, is increasing consumption rate at slightly more than 1% each year. Both of the most populated countries in the world (India, China) are increasing their consumption of oil at about 7% a year. The current high price has not yet been high enough to slow the increase in demand. This is the nut of the current bind we are in. The flow of oil can meet current demand, but just barely. Oil flow has not increased from the rate it was in June 2005. Demand for oil seems insatiable. As China and India develop a huge middle class, they are buying cars and refrigerators and computers. So while oil flow may make new production records in the coming years, demand will inevitably continue to rise until actual shortages curtail that growth.

So Greenspan is right that we have lots of oil. He is right that the world in on track to consume 130 million barrels a day. He is wrong to think we can meet that high of daily production.

We have a painful and bumpy road ahead as we turn to other ways of fueling our economy. It will be less painful if government would refrain from picking favorites and squandering time and resources as has been demonstrated by the folly of corn ethanol. Alas, I digress.

For hundreds of years into the future, man will be using oil. It will be used more selectively though. Less for transportation (outside of aviation), less for heating, but more for chemicals. (Plastics etc.) I am optimistic that we have a prosperous future, even though we can't yet see what it will be like.

cerewa

Frankly, I think the aviation industry is going to take a huge hit with oil becoming more scarce. Fewer and fewer people will be able and willing to afford airplane tickets, especially if they could sacrifice some time and take a bus/train instead.

wahoonc

I KNOW that the aviation industry will take a hit, it is already starting to show in their current contract negotiations with labor groups. However IMHO tickets have been improperly priced for years. As far as bus and train service...they really need to overhaul and improve schedules before they will come close to be usable. As an example: if I want to take a bus from my nearest town of Dunn, NC to Summerville, SC (a trip that I make once a week for work) It first requires a drive of 15-35 miles to the closest bus terminal. Then depending on which route I chose it will take from from 6.75 hours to 11 hours, Amtrak does do a bit better, still requires 15-30 mile drive to the station, it is about a 4 hour ride and currently costs less than the bus. To drive the same route is 4 hours. However if I need to travel to a city further west and not along the main rail/interstate corridor it gets much, much worse...as in no service at all by train and bus times that rival walking. My general rule for air travel is that it has to be more than 5 hours away by car before I will take the plane. I try to utilize Amtrak every chance I get (which is rarely). Biggest issue is the required ground transportation on either end. You either have to leave a vehicle in a non secure lot in a not good section of town, take a cab (on the SC end it was more than the cost of the train ticket!) or have someone meet you, which brings up a whole different set of issues. I am a major fan of mass transit, but if it is as much of a PITA to use as it is now, it is no solution. FWIW the town of Dunn, NC has a population base of almost 10,000 with no access to any form of mass transit, local or long distance.

Aaron

dwainedibbly

Train? What percentage of Americans outside of the NE corridor have ridden anything other than a subway? I love the "rails to trails" stuff as much as any cyclist, but I've always worried that getting rid of the railroad rights-of-way is a big mistake.

ChipSeal

I guess what I was alluding to is that only petroleum can produce a fuel with such a high energy to weight ratio that will allow long distance flight. There are no alternative fuels that could do this.

Yes, the high cost of operating airplanes will reduce it's usage, but there will still be folks and stuff needing to go long distances quickly.

ericy

Aviation has some interesting requirements. Both low mass in a relatively small volume, and it has to remain liquid at low temperatures and not boil at ambient temperatures. You can measure energy density in two ways. BTU/kg, and BTU/cm^3, so current aircraft have essentially been optimized to use fuels that have the same volume and mass densities as something like kerosene.

Not that I am advocating this, but hydrogen has a fairly low mass density, but the volume density is fairly high. Meaning that you would need substantially larger fuel tanks to carry it. Thus it is likely that if any other fuel source for aircraft could be found, the densities would be sufficiently different that the aircraft design might need to be substantially different. Offhand it isn't obvious to me what other non-petroleum based fuel could be produced in sufficient quantities such that avation will remain viable in the future .

wahoonc

What? You haven't seen the article where Sir Richard flew his Boeing 747-400 on coconut/palm oil biodiesel? Why it is the answer to our prayers

Aaron

Bikepacker67

Just remember:

Whenever an economist talks of how the free market will naturally reduce demand for a skyrocketing commodity - thus stabilizing its price - realize that if the commodity in question is a staple of survival, (such as food - in the case of our petrochemical dependent agro-system) a reduction in demand means death for those priced out of the market.

Dahon.Steve

The Suadi's are holding back production to keep the price high for they are not in business to sell cheap oil. Whenever the price of oil drops, they begin to ration production to raise the price. This has been done numerous times but the Saudi's are smart in this regard. They are in the drivers seat and making new facilities to extract more oil out of their reserves will only lower the price of oil. Again, they are not in business to sell cheap oil.

Dahon.Steve

The market forces could very well bankrupt the motor car industry and possibly the entire transportation industry. Greenspan is correct in that market forces will come to the rescue from the upcoming energy crisis and save us from ravages of the automobile by making it cost prohibitive.

I was in the library today reading newspapers on microfilm dating back in 1908. Market forces could very well bring back a car free society with trolleys running every two minutes during rush hour and the return of the iron horse. Capitalistic forces could very well mean the end of personal motor transport and the return of public transportation if we cannot find an inexpensive replacement for oil. The market forces will be allocated in other areas like horse and animal power, wood burning stoves and solar fuel cells.

I will say this. After spending four hours reading newspapers dating back 100 years ago, I didn't see much human suffering at all. Yes there were trolley accidents and derailments but it was far less carnage than what is happening on todays roads. Life in my town during the last century was very much like it is today with people getting married, playing sports, buying houses including heavy items like a piano! All without motor transport.

The upcoming energy crisis will not bring about a "Dooms day" like Greenspan said. It may mean the Dooms day for personal motor transport. I can't wait!

wahoonc

There will be some serious adjustment and there will be fallout. We are already seeing it is some places. Hopefully some gains won't be lost. I can assure you, I would rather be a factory worker in todays plant than a plant of 100 years ago. If we revert to the financial picture of 100 years ago, the middle class almost didn't exist and what did was much smaller than it is today. We were almost a 2 class society at that time.

Aaron

ChipSeal

A review of a Citigroup research paper was done recently by "Peak Oil Review", copied in full below.
https://www.energybulletin.net/40521.html (Fourth item)

I believe that Saudi Arabia cannot increase their production beyond 9 million barrels a day, and that they are lying about their ability to produce at a rate of 12 million barrels a day.

If the above Citigroup study is correct, even if the Saudis could raise production to 12 million barrels a day, it would not be enough to meet current rates of rising demand!

$75 to $100 a barrel oil hasn't reduced demand this past year. How expensive will it have to get in order to do so? Stay tuned, we'll get to see soon!

ericy

We hear anecdotal stories about SUV sales falling and all that, but people still drive as much as always. Whatsmore, I heard an analyst on the radio talking about how over half of all car sales are still minivans, SUVs and pickups.

What seems more interesting is that the high gas prices have reduced demand for other things. People are cutting back at Starbucks, eating out, and so forth. The choices that people could make that would reduce gasoline demand (new vehicles, or moving closer to the office) are ones that will be harder for people to make (esp with the mortgage meltdown and a possible recession).


In the 1980's gas crisis, demand really did go down for a while

wahoonc

Anecdotal? If the Big Four weren't suffering from anal-cranial inversion, they might not be teetering on the brink of bankruptcy. All of them are hemorrhaging in the US. GM had to suspend operations at 4 of it's SUV /truck plants due to a strike by a vendor, but not an issue they have over a 200 day supply of vehicles available. Chrysler has laid off over 25,000 workers in the past 6 months, Ford is loosing ground daily but hasn't said much. GM is offering 74,000 rank and file workers buy outs.

Yes higher gas prices are reducing demand for other things. People all have a different toleration point. They can cut back for a while, then they will have a "come to Jesus revelation" (if you will) or at least some of them will, and realize that putting 25%-50%+ of their income into basic transportation is stupid and/or economically unfeasible. Then you will see things start to happen. My company has already made some changes to help reduce fuel usage for us and the employees. Our out of town jobs are now running 9-15 passenger crew vans, foremen no longer drive crewcab monster trucks, etc.

Change is afoot, let's hope it sticks and people learn from it and don't backslide. And that the change occurs without major economic damage, however I can't fathom that happening.

Aaron

bragi

Good post; I think your assessment of the situation is spot-on. Even kids can get it. I teach 6th grade science. As a graphing exercise, I had my students plot projected world petroleum demand and production between 2005-2030, using US government figures I found on the internet; the two lines meet in 2012; after that point there is an ever-widening gap. (I was really surprised by how nearly flat the production line is.)

And as for the US economy not being signifantly impacted by $100 barrels of oil: a simple trip to the grocery store and a quick look at the business pages of any newspaper should convince anyone that severe economic impacts are already here, especially for the US.

ericy

While that is true, I heard a report on the radio the other day that over half of the vehicles sold are still minivans, SUVs and pickups.

Newspaperguy

In the 1970s, because of the oil embargo and price spikes, changes happened. America actually took some impressive steps then. Highway speed limits were reduced. Auto makers began producing fuel efficient cars. For the first time in decades, bike were seen as adult transportation, not just toys for kids. The line-ups for fuel and the odd/even fill-up days were difficult, but changes came about. Within just a few years, there was a new way of thinking about transportation and automobile use.

But then in the 1980s, when prices dropped, people began to go back to their old habits.

If the prices were to spike again, we might actually have an easier time coping than in the 1970s since we now have a model in place for how to cut back on our fuel consumption. It could happen again.

wahoonc

I would like to see where they are getting their numbers from. Latest data I could find on a quick search was 2005 SUV's, pickups and mini vans were only about 40% of total market. The single largest market share belonged to mid sized sedans at 25% or so. I have seen current figures that indicate the sales of larger vehicles are slowing rapidly...but then again, sales of any big ticket item is slowing. Now I won't doubt that over half the vehicles still on the road are pickups, SUV's and vans.

A bit off topic, but here is a look at vehicle weight vs carrying capacity, a bit tongue in cheek, but still and interesting view.

Regardless of what anyone drives, the US as a whole could stand to cut back on their driving drastically. I think they would see some fall in fuel prices.

Aaron