Peak oil, fact, fiction or government scape goat?

[chaord]

So, I have been hesitant to post this for a while, but I have been thinking about it a lot.  I also have great respect for the bitcoin community when it comes to sound economic and philosophical analysis.

A few weeks ago, I was told by a buddy to watch the documentary Collapse http://www.imdb.com/title/tt1503769/  It is essentially chronicling one man's attempt (Michael Ruppert) to expose what he finds as the biggest reason why governments all over the world are making huge power grabs.  He argues that it is not actually a quest for power so much as it is literally a quest for survival (the two are obviously very related).  In essence he's talking about the whole "Peak Oil" thing (that from here on out, we have exhausted over half of the world's oil supplies).  Here are a couple of the claims:

• We have exhausted over half of the world's oil supplies
• We use oil for so much more than just heat and locomotion these days.  It is an input to so many economic goods you can't even count them all anymore.
• It is extremely unlikely that we will find a true replacement (economic substitute) for oil anytime in the near future.
• World population growth started increasing exponentially with the discovery and industrialized use of oil.  They claim this to be beyond mere correlation, and that abundance of oil actually opened the floodgates for population growth.
  
• When oil eventually is either exhausted or priced beyond reach, the world as we know it can only actually support 1/3 of its current population, in their current lifestyles.
• Governments have known this for quite some time and have been scrambling to maintain ownership/control of oil around the world (eg, we are not in the middle east to spread "democracy" as they like to say).  Many would argue that they have been preparing for a time when large portions of their populations will starve (ration) to death (FEMA camps, etc).
• The US will NEVER leave the middle east, for the above reasons.

All-in-all I would recommend the film to anyone interested, and it's made me contemplate picking up a book like http://www.amazon.com/Ecotechnic-Future-Envisioning-Post-Peak-ebook/dp/B002TLTSB0 or http://www.amazon.com/Transition-Handbook-Dependency-Resilience-ebook/dp/B001ANYD6I/ref=sr_1_1?ie=UTF8&m=AG56TWVU5XWC2&s=digital-text&qid=1294646498&sr=1-1

So that's a lot of pretty crazy claims.  However, it's also pretty hard to argue with the data presented as well.  I, like many of you on these forums, am adamantly for unhampered markets.  I'm sure that oil prices will rise so high that we will truly attempt to innovate our way out of this (once governments get out of the way and stop keeping the price artificially low).  And I'd like to think that we CAN innovate our way out of this.  However the more I look into it, the more it seems highly unlikely that we can maintain our current world population AND ween/replace our dependence on oil.

My question is this:

• Is the whole peak oil thing and it's doomsday predictions just a bunch of mis-information?
• If the consequences of peak oil are what some of these "experts" are predicting, what contingency plans do all of you have in place?
• Assuming oil was exhausted, do you think the market can innovate to support the current world population? If so, how?  I personally have yet to see a technology or resource that could even remotely compete with all of oil's uses.

Essentially, I'm just trying to see whether any bitcoiners think there is validity to all of these peak-oil claims.  And if there is, what you propose we do about it.

[1713868876]

1713868876

[1713868876]

1713868876

[1713868876]

1713868876

[Vinnie]

Oil prices will only matter until they surpass the next cheapest energy source. That's not to say damage won't be done. So let's think at the margin here. What are the incentives built into our current energy paradigm?

The average American household spends nearly $17,000 (34% of total average expenditures) per year on their over sized, piece of shit house in the middle of nowhere (the suburbs. I live in the 'burbs, too, so don't get offended.) $3,500 of that is spent on utilities to heat and cool that empty space created by vaulted ceilings, power the flat screen TV, etc.

A function of our city design (the suburbs) makes it impossible to live your middle class American life without at least one car. I've tried going without, and unless your in a select few neighborhoods in a select few cities, you'll spend half your day trying to get to where you need to go. It sucks. So the average American household spends $8,700 (17.6% of total average expenditures) per year on transportation.

Source: http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/

What does that tell you about the economy of the US? It tells you that a large portion of the economy exists to build and maintain the suburbs (over 50% of our household expenditures go toward this!!!) So, when the price of gas goes up to $10/gallon and electricity costs $1/kilowatt, I'm sure everyone will happily give up food, healthcare, entertainment, etc. to continue supporting their extravagant suburban lifestyle, eh? No! Instead, we'll abandon the suburbs, sell our cars, and hopefully start building traditional cities. That is, beautiful, dense, urban environments surrounded by wilderness or farmland with no suburbs in between. Instead of keeping the heat on all winter and the A/C on all summer, maybe we will start building homes suited to the environment in which they're built, with plenty of insulation and strategically placed windows. Instead of going to the bahamas for vacation maybe we'll just go to see more plays or more movies. Maybe we'll spend more time socializing with friends. Instead of lighting our homes with incandescents, maybe we'll switch to LED's. Maybe not, maybe that's worth the extra price. More of our money will go toward food, and less will go toward shitty plastic imports. More of our money will stay local, I imagine, as shipping prices will go up. Thankfully we have modern technology that can easily be adapted to serve local markets rather than global ones.

Our consumption patterns will shift toward energy efficiency, and a localized service based economy. We'll pay more for food, but I bet it'll taste better. We'll stop driving cars, but when we build beautiful, car free urban environments, walking will be a pleasure. We'll give up a huge house for a smaller one, with less stuff and instead spend our money on more "experiences" like going out to eat with friends or watching a show or taking in a concert; entertainment that doesn't rely on oil! I don't know..... I'm sure the transition will be a bit painful, but the end result doesn't sound too bad to me!

Further reading:

The Problem of Scarcity 3: Resource Scarcity
Let's Kick Around Those "Sustainability" Types
Life Without Cars
What a Real Train System Looks Like


Oh no! No cars! What will we do!

[chaord]

Vinnie -
I couldn't agree more with your analysis and conclusions.  In fact I have an almost identical picture of how civilization would react to much higher (eg more true) oil prices.  And frankly it's not a half bad picture .  But this pretty much presupposes that the rise in oil prices, and hence the timing of the development and re-localization of economies and such, will be gradual.  I hope it is.

My fear though is that there is a slight chance (how slight, I do not know) that we will not gradually shift towards this utopia, but instead prices will rise much much faster than our ability to re-develop.  Most people/societies, rather than redeveloping for the long term would revert to "survival mode."  By this, I mean that any attempt (private or public) to allocate resources toward "smart development" might be thwarted by the masses because those masses would literally consume those resources for survival. 

As an example, I imagine a scenario where a family has a couple goats that they do not eat, but rather use for milk.  Let's say that those goats produce enough milk to sustain the family of 4.  However, as soon as a mob of 30 sees those goats, they will not have enough sense, nor will the goats have enough milk to justify keeping the goats alive (much to the family's dismay).  The mob would probably slaughter the goats, divide up the food, hoping that that will sustain them until their next slaughter.  Otherwise, the mob would starve.

So essentially I am afraid that we may run into a situation similar to the goat example.  A few people around the world have properly planned, prepared, and cultivated resources necessary sustained themselves.  However, it takes time to develop those resources.  And if it's literally impossible for the ill-prepared masses to follow-suit (eg, there are not enough goats, and we can't make more out of thin air)  Yet, because there are literally not enough resources to sustain the rest of the population, most people/groups would simply revert to survival mode.

Of course, all this is a thought experiment at this point.  I'm actually quite optimistic about our ability to innovate out of a resource crisis.  However, I still would like to know what the odds are that society is left in an impossible situation:

• where the resources available could keep a everyone alive for a couple days, after which everyone perishes (probably what would happen if the entire world was socialist/communist)
• OR the available resources could keep a portion of the population alive indefinitely (probably what would happen if the entire world was a free market and respected private property). 
  

In either case there is still a lot of pain and suffering, presumably of some innocent people. 

[ribuck]

Humans are good at adapting, and Vinnie said a lot of wise things.

World population growth started increasing exponentially with the discovery and industrialized use of oil

Bear in mind that the exponential growth just occurs until a certain level of prosperity is attained. Then, people start having less babies than the number needed to keep the population steady, so the population starts to drop except as negated by immigration. This has happened in every developed country. The reasons are not fully understood, but it seems to be linked to the level of education of females.

So, population pressures are not a long-term problem for the world, if we can make it past the next 50 years or so while Africa and India catch up to the west (which they are doing).

Governments fear this erosion of their tax-livestock, which is why many countries have incentives to have babies. (I think it was Australia's former Prime Minister John Howard who said each couple should have three babies, one for each of them plus one for the state. Bleagh!)

[sturle]

Is the whole peak oil thing and it's doomsday predictions just a bunch of mis-information?

It is true, but only half the truth is presented.

Oil supply is getting lower, but gas supplies are increasing.  A lot.  Natural gas is CH4.  Oil is just chains of CH2 of various length with a extra H in both ends. CH4 (methane) is the simplest form.  C2H6, C3H8, C4H10, etc.  You get the picture.  Octane is C8H18.  Very long lengths makes cheap heavy oils and asphalt.  It is common practice by refineries to "crack" heavy oils by treating with natural gas or hydrogen (made from natural gas) to crack the long chains and make shorter chains.

A similar process called hydrogenization is possible with coal.  Germany produced most of their fuel and oils from coal and water during WWII, and as a result got much better fuel and oils than the allies.  Only in short supply, since it was hard to keep production up while the allies were bombing.  South Africa also produced synthetic fuel on a large scale during the long boycott in the 1980's.  The same processes can be modified to work with coal and natural gas.  Coal and natural gas is plentiful.  Peak oil only means that refineries needs modifications to make fuel from other stockpiles.  This is already being done as a part of normal maintenance and renewing all refineries do.  Refineries with high cracking capacity already have a great advantage because heavy raw oil is much cheaper than light qualities of raw oil.

You probably already use a synthetic motor oil in your car, because it is better.  In the future only cheap gas and diesel will be made from raw oil.  Wikipedia has a interesting article on synthetic fuels in general.

[Mike Hearn]

I got very concerned and read a lot about peak oil a few years ago. I strongly recommend the articles by Stuart Staniford on theoildrum (most of the stuff on that site is crap these days, but his articles are worth reading). In particular this one:

   http://www.theoildrum.com/node/7327

from a few days ago.

Basically, I wouldn't worry too much right now. Peak oil is real and not discussed enough by our leaders, but the more time passes on the plateau we've been on since 2004 the less likely it is we'll see a huge sudden decline. Much, much more likely is a slow squeeze in which our fairly pathetic average vehicle fuel consumption figure trends upwards over time to offset the decline in production. There is a LOT of room to optimize in our current transportation infrastructure. By the time oil production is 1/3rd of what it is today it's very likely we won't need anywhere near as much as we use (because, eg, electric vehicles are common).

And as noted by sturle there are other ways to make oil than by sucking it out of the ground.

[ribuck]

...By the time oil production is 1/3rd of what it is today it's very likely we won't need anywhere near as much as we use (because, eg, electric vehicles are common)...

...or even because virtual reality becomes so good that it replaces travel for many purposes. Who knows what the future holds? It would be a pity to throw away part of one's life worrying about peak oil. The market will sort it out.

[Mike Hearn]

Actually just read the recent articles on his blog, earlywarn.blogspot.com. His article on potential future Iraqi production is the most important.

http://earlywarn.blogspot.com/2009/12/iraqi-oil-production-history.html

If that scenario plays out (looks increasingly plausible) we could see a huge rise in production and any possible peak would be offset by at least a decade. By which point

http://earlywarn.blogspot.com/2010/12/lithium-revolution.html

lithium powered vehicles will be cost competitive with petrol powered vehicles.

Is it possible Dick Cheney will have the last laugh? Maybe so.

[sturle]

Actually just read the recent articles on his blog, earlywarn.blogspot.com. His article on potential future Iraqi production is the most important.

Not very probable, if you ask me.  Iraq is a very unstable country.  Millions of their brightest heads (40% of the middle class) have fled since the beginning of the war, and the constant stream of refugees from Iraq is still continuing.  A lot of essential infrastructure is still down and can't be rebuilt safely due to the risk of attacks.  The country just managed to pull toghether a weak government eight months after the general election!  Production numbers for the first week in January 2011 are far below what this growth plan predicted for the end of 2010.  The plan must be revised already, but I guess everything is on track according to the Information Minister.  :-D

[Gavin Andresen]

I wrote a blog post about peak oil a couple of years ago:
 http://gavinthink.blogspot.com/2008/04/peak-oil-more-like-speed-bump-really.html

I still believe my conclusion:  we'll be fine.  We'll use less oil and more of something else.  After all we survived Peak Whale Oil (you know, whale oil, that essential commodity that was so great for high-tech oil lanterns).

[hugolp]

I dont have an opinion on peak-oil. I tried to look at the data but its a very specialized and closed industry so the data did not seem reliable enough, so I dont know if peak-oil is real or not.

But no matter if it is real or not it is being used to hide the monetary manipulation and the crisis they produce. Why am I saying this?

During the 50's and the 60's there was little talk about peak-oil. During the 70's with the Fed printing like crazy producing stagflation peak-oil was everywhere with "scientists" predicting with mathematical models that there was only petrol for 20 more years and forcing people to believe that petrol was the cause for rising prices. During the 80's no more peak oil. During the 90's no more peak oil. During the 2000's no more peak-oil. And now that there is a new crisis where the central banks are printing like crazy, peak-oil comes to the front again...

Peak-oil is somehow correlated with central bank printing...  

Now, even if peak-oil was real, the price increase would be progressive and over years. There would be no swings going from $80 to $140, then down to $30 and up to $80 again in like a year or year and a half. This movements are not supply and demand, they are monetary.

So it seems quite obvious to me that peak-oil is being used to hide the central bank manipulations. And it seems it will be used again when all the money the Fed has created leaks and prices start rising like crazy.

PS: If someone still believes that the 70's stagflation was caused by petrol: http://blogs.forbes.com/johntamny/2011/01/09/paul-krugman-channels-jimmy-carter-and-the-club-of-rome/

PS2: And you might want to check some Tomas Di Lorenzo video where he talks about how since the Rockefeller started in the petrol business the government has been promoting the scarcity of petrol. USA government officials said that petrol would never be found in California or Texas for example. EDIT: I found the Thomas Di Lorenzo video (government peak oil propaganda starts at 17:40): http://www.youtube.com/watch?v=1DIuXMJK_YA

[Mike Hearn]

The point about Iraq is that it looks like the troop surge worked and the country is stabilizing. Yes it's still rather flaky but the graphs are all heading in the right direction.

[kiba]

YES for walkable cities instead of socially suffocating suburbans.

[chaord]

Thank you all for the very well thought out and reasoned responses.  I too tend to think that we'll be fine.  However, it seems pretty apparent that the next 50 years or so would necessitate quite a lot of cultural and developmental changes.  If I understand correctly, essentially this is what needs to happen:

• The world population must decline naturally, due to a conscious decision to have fewer children.  But how far does it need to decline?
• Our cities need to become more dense, with surrounding suburbs turned back into farmland
• Individual transportation will become far far more expensive than mass transportation
• Consumers will be priced out of their habits of materialism.

Unfortunately, looking at that list, and thinking about it from the perspective of liberty, and it doesn't look very good.  By this, I mean that governments have claimed a monopoly on at least two of the areas mentioned (city and urban planning/zoning, and mass transit).

It's quite frustrating to think that we, and other market participants, have solutions ready and waiting...yet we are unable to implement them, because we need either "buy in" or "sign off" from the powers that be. 

[kiba]

The earth can support plenty more trillions. Plus, we have ton of methane.

Don't forget that we continue to be more efficient in the use of energy and that the sun give us more energy in one hour then we use as an entire civilization in a year.

Go nuclear if we must.

[nanaimogold]

I don't completely agree with Ruppert on every point, but his book, "Crossing the Rubicon", is a real eye-opener.

Mike was a narc with the LAPD and his family are a bunch of CIA/NSA spooks. He was involved with Gary Webb's expose of the US gov traitors coke peddling and the Iran-Contra drugs for arms scandal.

Crossing the Rubicon was published in Nanaimo, home of real men with big thoughts. I once asked Mike why he did not publish in the USA. His answer I'm sure you can all guess.

http://www.amazon.com/Crossing-Rubicon-Decline-American-Empire/dp/0865715408

His recent movie is kinda weak though. The sniveling is so unmanly. Gotta avoid those plastic lined food cans Mike.

[Vinnie]

Unfortunately, looking at that list, and thinking about it from the perspective of liberty, and it doesn't look very good.  By this, I mean that governments have claimed a monopoly on at least two of the areas mentioned (city and urban planning/zoning, and mass transit).

This is a challenge, but not an insurmountable one. Witness.... my wife and I are considering going in on some rural property near the Olympic Peninsula in Washington State with 5 to 10 other families. It consists of 55 acres (11 individual 5 acre lots combined into one,) with county zoning defining land use as rural/agricultural/forestry. It's density is 1 home per acre and the minimum yard buffer is waved if you can build a sewage disposal system that doesn't pollute the water source of your neighbors. So we could build a dense, urban village of 11 homes. We already have 5 families very interested, 4 of which have a head of household who works from home. The land, plus a house, costs $250,000. So half of the families have a salaried job working from home, the rest farm or commute to the nearby small town for work. If we work together we can keep our costs down (share a central heating system, adjacent home walls, put together wholesale orders for groceries, etc.) If we prove successful then we buy land adjacent to us to double our acreage and add 11 more homes. The county in mind will love the tax revenue, and the community we are planning will designed to be resource light in its very design (so the county won't have to extend and maintain utilities infrastructure to us.) If this model proves successful then we build a second community 5 miles down the road, kinda like the Amish. Eventually, one of these communities turns into commercial hub; then *we* tell the county what to do.

I'm trying to get this going in some of the tribal communities I'm connected to. Tribal governments have royally fucked up their communities, in general. I'm talking shoddily built shacks that resemble suburban housing developments built in the middle of fucking nowhere.... like 50 miles from the nearest grocery store. Keep in mind these are housing "developments" designed to provide homes for poor people who can't afford cars.

Defense against the mob.... I follow John Robb at Global Guerrillas. He proposes the concept of a resilient community, that is, a community that exists at the smallest possible level (from a neighborhood to a town to a city state) that can provide its own energy, security, food and transportation in an event of a disconnect from the global economy. If you build enough of these and network them with defense pacts then there's no way the mob can take down all of them. The design can be adapted as a for profit venture with clearly defined private property with covenants and contracts in place to maintain resiliency, or it can take the form of a 100% socialist commune. Take your pick! Basically, if and when this happens we will have a healthy pan-secession from the empire by default, and anarcho-pluralism will dominate the continent in the form of political units so small that no one could ever hope to over power another, and the full rainbow spectrum of political and cultural life will be represented. God damn I can't wait for that to happen. More on this topic (and synthesizing a movement with the radical right and urban lumpen-proletariat as warriors against the empire) at http://attackthesystem.com.

[chaord]

Witness.... my wife and I are considering going in on some rural property near the Olympic Peninsula in Washington State with 5 to 10 other families. It consists of 55 acres (11 individual 5 acre lots combined into one,) with county zoning defining land use as rural/agricultural/forestry. It's density is 1 home per acre and the minimum yard buffer is waved if you can build a sewage disposal system that doesn't pollute the water source of your neighbors. So we could build a dense, urban village of 11 homes.

*snip*

Fascinating!  I have had similar thoughts of starting small partnerships like this.  I'd love to hear more about your plans.  Email me when you get a chance (chaord.btc@gmail.com), and we'll get a dialog going.  I could be interested in joining up with you.

I've actually wondered whether a modified plan of yours would work better, from a financial standpoint.  By this I mean, what if you built your "village" to handle 30 households, yet only 11 households live there full time initially.  The amount of housing and amount of food grown/stored would be enough for 30 households.  Resident households/land owners work the land and such.  They also sell call options to the other 19, giving the non-residents the right, at any time to move into the community and bring agreed upon additional resources (exercise price) when they come.

• Advantage to early adopters/residents:  option premium provides revenue to supplement sustainability efforts
• Advantage to non-residents: an effective "insurance policy" should "sh*t hit the fan"

The development must always be able to accommodate both residents and option holders, otherwise the viability as an "insurance plan" is nullified.  This would likely mean that these options wouldn't exactly be cheap.

What do you think? Maybe we should build ourselves Bitcoin-Ranch   [/list]

[Stephen Gornick]

[...], what if you built your "village" to handle 30 households, yet only 11 households live there full time initially.  The amount of housing and amount of food grown/stored would be enough for 30 households.  Resident households/land owners work the land and such.

Kind of a related concept:
  Provide housing in exchange for equity in the tenant's project:
  http://www.hackercommune.com

[em3rgentOrdr]

I also have great respect for the bitcoin community when it comes to sound economic and philosophical analysis.

Me too...I look to the bitcoin community for all my answers to philosophical and economic questions. 

Vinnie says a lot of wise things...  Also many other great comments by the bitcoin community.  Anyway, my two bitcents on this whole topic would be:

• with the guidence and direction of our god, The Market, human society will eventually reach an equilibrium population and per-capita rate of energy consumption where the electrical energy consumption and food consumption of each human would be provided by a certain sustainable square meters of surface area of the earth to produce primarily vegetarian food from photosynthesis and energy from solar power.
• no more suburbia
• people will be consuming less physical goods, slowly replace them with services, and eventually consume almost entirely informational goods