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Oil Cliffs

by Nomad Fri Nov 12th, 2010 at 09:44:36 AM EST

With compliments to Melanchthon and Sven Triloqvist

In Jerome's well-discussed Oil Plateaus, ceebs highlighted a titbit that simply underlines the depth of the global energy ravine:

Oil will run dry 90 years before substitutes roll out, study predicts

At the current pace of research and development, global oil will run out 90 years before replacement technologies are ready, says a new University of California, Davis, study based on stock market expectations.

The forecast was published online on Nov. 8 in the journal Environmental Science & Technology. It is based on the theory that long-term investors are good predictors of whether and when new energy technologies will become commonplace.

"Our results suggest it will take a long time before renewable replacement fuels can be self-sustaining, at least from a market perspective," said study author Debbie Niemeier, a UC Davis professor of civil and environmental engineering.

Oil will run dry 90 years before substitutes roll out, study predicts

Two key elements of the new theory are market capitalizations (based on stock share prices) and dividends of publicly owned oil companies and alternative-energy companies. Other analysts have previously used similar equations to predict events in finance, politics and sports.

"Sophisticated investors tend to put considerable effort into collecting, processing and understanding information relevant to the future cash flows paid by securities," said Malyshkina. "As a result, market forecasts of future events, representing consensus predictions of a large number of investors, tend to be relatively accurate."

The on-line article can be found here, but is behind a pay-wall, except for the abstract.

Somehow I've little confidence that a study which talks in "market-speak" will be able to rise awareness of the hole being dug in front of our eyes, including one for companies to topple into.

but I find this talk of 90 years absurd. If we wanted to do a crash programme in wind power, we'd get to the kinds of levels of energy production we need much faster. Look how many planes the US factories were cranking out at the end of WW2. Wind turbines are not more complicated.

If there was an overriding reason to have 100% wind power in 10 years, we could easily do it.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 09:35:56 AM EST
Well, the forecast is absurd on its face:
The forecast ... is based on the theory that long-term investors are good predictors of whether and when new energy technologies will become commonplace.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 09:48:19 AM EST
[ Parent ]
On the good side it gave me a bit of a chuckle.

There's been several studies showing picking stocks by throwing darts is more lucrative than "stock market expectations."

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Nov 12th, 2010 at 12:09:17 PM EST
[ Parent ]
The actual estimate is 131 years from 2009. 90 = 131 - E/P with E/P for oil assumed 32 years to 45 years. There are numerous variables regarding speed of diffusion but even for replacing half the oil they calculate a range from 79 to 443 years (with current information, barring sudden events or turning points).
Obviously, our results suggest that there is a potential danger that crude oil will be depleted before it can be replaced by viable substitutes.
Finally, it is noteworthy that the estimate T ≈ 131 years, given by the pricing eq 1, is conditional on the current information set I0 (note that any forecast is always based on the information known in the present). If new information becomes available and this set changes in the future, then the estimate based on the updated information will also change when the new information is revealed (e.g., if policy interventions such as new major investments in the alternative-energy sector are made, then we would expect that the alternative-energy companies market capitalization would likely increase, with the net effect that the estimated value of T would decrease). This would suggest that alternative types of model specifications (e.g., extended using integrated socioeconomic and financial models) might be very useful.
10 years for 100% wind? I say no, or depends on what the 100% will be. Certainly not a replacement for liquid fuel and the associated fleet in that time frame.

Schengen is toast!
by epochepoque on Fri Nov 12th, 2010 at 10:29:31 AM EST
[ Parent ]
What I forgot: even they acknowledge peak oil 2010-2030.

The peak of oil production is estimated to occur approximately between 2010 and 2030 (9, 34). All these dates are considerably earlier than our estimate of the time until an alternative technology has entered the market, which is around 2140. [...]

We would also expect that oil consumption would decrease due to energy-saving measures and/or due to responsiveness of demand to higher oil prices. All of these factors would change our predicted outcome.

To replace all of oil is of course a different task once production decline sets in. First the crash, then the up-build to the diminished level.

Schengen is toast!

by epochepoque on Fri Nov 12th, 2010 at 10:49:13 AM EST
[ Parent ]
is of course the figure that the press picks up, so it's not too relevant.

I think the take-away point is that at current rates, energy-replacement is not happening, and will leave us with a shortage.

Now I'm fully convinced that rate can indeed pick up, yet aren't your post and the IEA graphs showing, rather glaringly, an overriding reason to talk business and the industry to pick up speed?

Or will the rate of production in renewables only seriously pick up when oil prices hit economic crash levels again?

by Nomad on Fri Nov 12th, 2010 at 10:47:46 AM EST
[ Parent ]
I found this graph in the WSJ just as fascinating:

From here

The article itself (which you can dig up via google if necessary) is not that interesting, but I liked this conclusion:

Stronger prices up front should encourage the development of new resources and spur demand destruction, particularly in the West. The result will be periodic oversupply--as we see in today's natural-gas market--and economically wrenching shortages. Thankfully, a quick glance at oil prices over the past century or more confirms that we are used to that.

My reaction to the graph was: the EIA is predicting oil prices to be - and remain - at levels higher than they have ever been, and basically to remain at levels above which they have, historically, consistently caused economic crashes...

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 09:38:31 AM EST
It is absolutely necessary for all carbon fuel prices to be maintained at the level at which demand destruction takes place. The current situation is that surplus carbon resource rents are being collected by public and private sector intermediaries as taxation and profit respectively.

IMHO this intermediated financial system is terminally fucked due to inherent conflicts; perverse incentives; the mathematics of compound interest; and the systemic imbalances to which these have led.

The question is how we may evolve a dis-intermediated global market framework to make the existing system redundant, and how the surplus rents may be equitably shared and deployed to finance the transition to renewables.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 12th, 2010 at 09:54:07 AM EST
[ Parent ]
My reaction to the graph was: the EIA is predicting oil prices to be - and remain - at levels higher than they have ever been, and basically to remain at levels above which they have, historically, consistently caused economic crashes...

Even if prices remain high, I see a problem.  The reality of crisis, and the solutions proposed are two different creatures.  

What makes you think that the lesson that high prices conveys isn't going to be more invasions of oil producing states?   I think that we have very good prospects for bringing down oil consumption permanently in the medium term (10-15 years) with the introduction of electric vehicles. In the US over 2/3rds of oil consumed is in the transportation sector. Extended range electric vehicles mean that 80-90% of private vehicle miles will be able to be shifted to electricity from oil.  That's huge. In the US alone, that's something on the order of 5-10 mbd that might be saved.  

Then again it looks like the real estate bubble in China may be about to pop, leading to a credit crunch.  If that happens, there will be a large contraction in demand in that country. We both know that oil isn't falling beneath $1/gallon any time soon.  But, consumers have short term memories, while vehicle purchases have long term consequences. If prices drop, then it is going to take longer for electric vehicles to enter the market.  And a car bought today will still be using gas 7-10 years from now. That creates a certain degree of inelasticity in demand.

Even if prices are high in historical terms, will they be high enough to sustain interest in more efficient vehicles, and electric ones in particular, in the US?

What happens in China appears to be a real issue here.  If Chinese demand falls, will oil prices collapse?  If that happens, do larger vehicles start selling again?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Nov 12th, 2010 at 12:16:17 PM EST
[ Parent ]
This is obvious idiocy. Mostly because the continued operation of industrial society and transport does not need a single new invention to replace oil.

these are some of the things that could, if nessesary, be rolled out in weeks to months if, oh, say, the middle east decided to go up in flames.

  1. Coal and solid->liquid technologies. This is very bad news for the enviorment, but WWII era technology, and very well understood.

  2. Electrolysis of hydrogen->ammonia synthesis->ammonia driven combustion engines. Ammonia synthesized from electrolysis sourced hydrogen costs well below 1000 euro/tonne, and has high enough energy density to be an acceptable replacement for gasoline as a combustion fuel. Ammonia synthesis is also the single largest scale chemical process in current use, so scaling it up to any given size is not a problem - the feedstocks nessesary are water, air and electrons all of which are effectively limitless, and a closed circut in any case, as the combustion products are water and air.
Of particularily note, it is not even a serious problem to run this process mostly on intermittent energy sources, as the capital costs of the electrolysis aparatus are neglible. (later steps do need a reliable power source, but the hydrogen production doesnt)

3: LNG converted combustion engines.

Things that would take slightly longer:

Nuclear shipping. sticking a reactor in every new merchant ship would be cheaper than what we are currently doing. (it would move a lot of shipping expenses from fuel purchases to wages for security and reactor crew, but overall, shipping costs would actually drop.)

High-speed rail for interurban transport and electric cars pools for urban transport (idea being that you dont own a specific car, but have a car share in a national system that gets you access to a veichle whereever and whenever you actually need one. This would make public transport actually work better as you can get off a central train station and pick up a car there.

Ect. and so on.

by Thomas on Sat Nov 13th, 2010 at 01:11:06 PM EST

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