Not too far from now

Kevin Drum writes about our oil peak problem, which isn’t as potentially grave and significant as our greenhouse gas problem, but beats any other contender.

Oil production will almost certainly surpass 84 million barrels per day as new fields come online in the future, but demand is going to increase right along with it. Thus, unless there’s a global economic shock of some kind, it’s likely that demand is now permanently equal to supply. There’s no spare capacity left, and there never will be again.

This mean that we’re now living in a different world. I’m not sure what all the ramifications of this are, but one thing is pretty certain: the next oil shock ? and there will be one eventually ? is going to be worse than any previous shock. Fasten your seat belts.

By an odd coincidence, I stumbled upon this quite topical Andrew Brown post from March today:

Where in Europe would you want to live, if there were no oil and no Gulf Stream [which will make northwestern Europe much colder]? Of the three really huge catastrophes impending in the next century, it seems improbable that we can avoid more than one or two. The oil will run out, and energy will become very much more expensive, with huge consequences for trade and agriculture. The world will warm and may well warm so much that the Gulf Stream stops. The population of Europe and Northern Russia will fall, unless replaced by immigration, which will be resisted. (It’s possible of curse that this effect will arise from the other two, as well as from the demographic trends we now have).

So where would you want your children to live, in a Europe that has neither oil nor gulf stream? Choose now, while we still have the political structures in place to make movement easy. Certainly not England, cold, miserable, overcrowded.

My first instinct would be for Sweden. It’s reasonably well-governed, harmonious, and has plenty of room for farming. But if the gulf stream goes the effect on the climate might be horrible. It certainly will be in Norway. I need to think about that. Second choice, France. Lots of room in the countryside, defensible borders, nuclear power, efficient, not very corruptible government.

But what does the team think?

Switzerland?

18 thoughts on “Not too far from now

  1. I live in Spain, and it doesn’t seems a bad place. There is quite a lot of low populaion density in the interior. Water may be a problem, however.

    DSW

  2. So the world is going to be different in the future. Why does that come as such a shock?

  3. I’ve always thought that Belize would be the place to be in case of a serious crisis. Be that nuclear war, or breakaway climate change. Of course it isn’t European, but we could change that…

  4. “So the world is going to be different in the future. Why does that come as such a shock?”

    Ahh that fine Republican attitude to personal responsibility. Excuse any mess you make by saying “All things in time will pass. Don’t blame me.”

    Let’s have a little thought experiment. Suppose you buy, for $1 million, a property in Connecticut. Now let’s say, tweny years after you’ve been paying this off, you’re told that it’s on top of a toxic waste site, completely useless to you or anyone else, that you’re out $1 million. Oh, and by the way, the people who sold it to you knew exactly what they were selling you.
    Would you response be a pleasant “hah, hah, you got me. The world of the future has just changed as of today”?

    The issue is not YET culpability, but one day it is going to be. There is a very definite class of people who bear culpability for the changes of the future, and those for whom the changes are not advantageous will be perfectly within their moral rights to demand compensation from those culpable. Those culpable will, of course, not pay up. At that point what happens is anyone’s guess, but I personally expect it to make America’s big Middle Eastern Adventure look like the minor sideshow that it is.

  5. The west coast of Ireland is the place to go (though I’m loathe to make this too public). The total population of the island is now half of what it was during the 1830s (just prior to the potato blight) and it can therefore become a sustainable and self-sufficient place far easier than almost anywhere else in Europe.

    The Gulf Stream (if it were to shut down) would have consequences for the entire continent, but there’s still a great deal of discussion about just how serious those consequences would be. The idea of us having “a Siberian climate” just because we’re at the same latitude is plain silly. Siberia is in the centre the world’s largest landmass… the climate dynamics are completely different to those of a coastal area.

    A much better comparison would be the southwestern coast of Canada which, while cold in the winter, is certainly a place where people can live and produce food all year round.

  6. There is a very definite class of people who bear culpability for the changes of the future, and those for whom the changes are not advantageous will be perfectly within their moral rights to demand compensation from those culpable.

    The world will change in any case. Some people will suffer, some will gain. It is arrogance to think that the conditions here and now are preferable to changed circumstances.
    We may have a certain influence on the speed of the change, but it is by no means certain that the tremendous cost excercising that influence would mean it is worth it to anybody including those who would suffer from the change.

  7. I’ve played this game in my head but I live in Pennsylvania without the resources to move so I mostly wonder how to make what I have work in the coming shock. I always come back to realizing that when the oil runs out, we are going to have to rely on our immediate communities to survive. I can’t grow/raise everything I need to survive in my small yard. If I had dozens of acres, I probably wouldn’t be able to defend it against poachers/squatters. (I’m not going to be able to wave a gun around without getting shot first – or shooting myself, for that matter.) So it’s going to come down to a neighborhood cooperative thing, which I’m not entirely sure would work with the mix of people I live among right now. I’m hoping that I can count on three or four of them though and that may be enough.

  8. This is unnecessary panic.
    Oil will not run out suddenly within weeks. The price will rise and crowd out poorer users. But even if it has to come to rationing, there will be fuel for essential goods and services such as transporting food.

    There is no industrial process which cannot be done without oil. There are just a lot of processes that are much cheaper if done with oil.
    Driving an SUV to work from a single house in the suburbs may well become unaffordable, but that is hardly a collapse of civilisation.

  9. “which isn?t as potentially grave and significant as our greenhouse gas problem, but beats any other contender.”

    Incidentally I’m not sure I agree with this. I would say that the demographic issue in Eastern and Southern Europe is way more problematic than the peak petrol problem (TFRs all stuck below 1.5), as it is in Niger (at the other end of the scale with a TFR of around 9).

    The problem of a rogue virus getting out of control isn’t exactly to be scoffed at, in fact we have the bird flu problem beating against our doorsteps now:

    Russia cordoned off roads and slaughtered hundreds of birds on Monday to contain the advance of a bird flu epidemic toward Western Europe. The outbreak, previously confined to five remote areas of Siberia, has now struck a major industrial region — Chelyabinsk in the Ural mountains, which separate Asia from Europe.

    Then of course – ahem – there is terrorism.

    So we aren’t exactly short of important problems on or near the horizon. Amongst all of these I would say the oil situation, whilst important, is not of the first order of magnitude. Whilst I’m on this, something Kevin Drum says is justy plain silly:

    “it?s likely that demand is now permanently equal to supply.”

    Well in economic terms demand is always equal to supply, since that is how markets clear.

    James Hamilton at Econbrowser has loads of fun with this point at non-economists expense here. Basically I think Hamilton overdoes it a bit, what Drum and the Hirsch report are getting at may be badly put, but they do have an underlying point (as many of the comments on the post – which also make interesting reading – indicate). What Kevin Drum meant to say was that “it?s likely that demand is now permanently equal to supply AT A VERY HIGH PRICE”, and this of course does have all kinds of repercusions. One of them may well be that more resources will go into finding more efficient ways of using energy (which would also be positive for the global emmissions problem) and into alternative energy sources. If we could finally get off the dependence on the petrol driven car and on the geopolitical consequnecesof that dependence, then I for one think that that would be a price worth paying, even if it meant slower economic growth short term. Of course, there is no necessary ‘hidden hand’ just waiting in the wings to guarantee a techno-fix. Whole civilizations have grounded to a halt on much lesser problems in the past.

    Finally, Hamilton is generally worth following for his interest in oil, and in the peaking problem. He is, as he says, a skeptic, but this may well be what makes him so interesting. Also worth a read are the oil drum and Dry Dipstick

  10. “Is it really that high corrected for inflation?”

    Well it isn’t exactly cheap, but no, it is still off the highs of the late 80s in real terms if that is what you mean. But why do you imagine it will stop where it is now?

    This is where I disagree with James Hamilton’s way of putting all this, since there *is* what you could term a secular rise in demand going on, and this is, of course, driven by demographics (what else) and economic growth. So the quantity demanded at any given price seems set to rise and rise with an effectively flat supply curve (we are about to hit the ceiling), so, other things being equal (which they never are) the market clearing price should be set to rise and rise in real terms (not, of course, without volatile fluctuations, eg the next move right now might be down). The USA has the highest standard of living of the large economies and the highest per capita energy consumption, so that will now be the benchmark for the rest, China, India, Indonesia, Turkey, Brazil etc, the whole 9 billion of us.

    The things of course which can offset this will be more efficient energy use, and alternative fuels, but as I said, we don’t know the time scale for any of this. What we do know is that if global growth continues at record levels the demand for energy is going to go up and up with considerable price resistance. Of course we will all be pushed into changing our lifestyles some (less travel, more time on the internet – I am only half joking 🙂 ).

  11. @Edward: Incidentally I just reacted on Hamiltons comments on my own site: “…you cannot argue against any study in itself by saying that the market tells you something else. That is lazy if not stupid. If the study is very good the markets will adapt to the new insights brought to them by the study. You have to argue against the arguments in the study itself!”

    @Oliver: “There is no industrial process which cannot be done without oil. There are just a lot of processes that are much cheaper if done with oil.
    Driving an SUV to work from a single house in the suburbs may well become unaffordable, but that is hardly a collapse of civilisation”
    I agree with that of course. However. What I do fear most is ugly political effects when this unaffordability appoaches. (the SUV-drivers form a good example here).
    I recently came upon http://www.watchblog.com/democrats/archives/000976.html :
    “Has anyone checked out John Kerry’s energy policy? It’s good stuff. It’s based on the concept of ‘energy independence’. That’s an idea that Democrats have nurtured for a long time, going all the way back to the Carter administration’s response to economic and security dangers highlighted by the 1973 OPEC oil embargo.

    President Nixon’s response at the time was to stop service stations from selling gas on Sundays and limit gas purchases to ten gallons the rest of the week, until the Arabs decided to sell us oil again. In contrast, President Carter’s plan was to make the United States totally self-sufficient for its energy needs. Carter’s plan will probably be best remembered for its 55 mile per hour speed limit, but his energy policy had the effect of reducing oil imports from the Middle East by 87%.

    By the time Presidents Reagan and George H. W. Bush left office, the United States was once again heavily dependent on oil imports from the Middle East, and now we are faced with a new threat from that region. This time the threat comes not from an oil embargo, but from Islamic fundamentalist terrorists. These terrorists are financed by oil money, so the last thing they want is to stop selling us oil. The United States gives more than $20 billion every year to people who are trying to kill us.”

    This line of reasoning is now followed by http://www.apolloalliance.org/
    but they seem to have forgotten that Kerry failed.
    (hence: “save democracy from direct elections”)

  12. but his energy policy had the effect of reducing oil imports from the Middle East by 87%

    That means fighting a losing battle. His success was only a few years after peak oil in the US and 25 years of economic growth followed. Conservation will not solve this. It needs more drastic solutions, such as abolishing the motor car. Drastic measures of this kind require price incentives.

    Or you go and grab the oil fields, which may be the long term US policy.

  13. Or you go and grab the oil fields, which may be the long term US policy.

    Not likely. Even putting the political ramifications aside, such an action would do little if anything to increase supply, even U.S. supply. Turning foreign resources into domestic ones does improve one’s trade balance, but they still get sold to the highest bidder.

  14. “it?s likely that demand is now permanently equal to supply.”
    Well in economic terms demand is always equal to supply, since that is how markets clear.
    …….

    Edward, this is unfair to Kevin, as you should know if you have been reading him for any length of time. Kevin’s essential point, although poorly expressed here, was that what is new is the lack of excess production capacity; that in the past for various reasons various states (obviously, but not only Saudi Arabia), had untapped production capacity so that while, yes, demand equalled supply, demand was less than *available (at short notice)* supply. That excess capacity is now gone, and it looks like it is never coming back. At the very least it would take years to build it up, but more to the point, if the peak oil people are right (and they strike me as a whole lot more honest, upfront, and willing to actually answer questions, rather than simply talk in circles without ever saying anything than their opponents), then the essential physics and chemistry of the problem are now different — that excess capacity cannot be created because the oil fields themselves will not allow for it.

  15. @ Maynard

    “this is unfair to Kevin…..although poorly expressed here”

    I think this is the only point I was trying to make, this kind of lose wording lets the critics in too easily through the back door.

    “That excess capacity is now gone, and it looks like it is never coming back.”

    I agree, as I have said, on substance. But I think we need to be careful on details. The peak oil argument seems to be suggesting a humpy peak, so ceiling capacity will come and go, and in the mid term capacity may well be able to rise somewhat. Where I disagree with James Hamilton (and see his latest piece on China and my comment) is that he doesn’t seem to recognise the strength of the secular rise in demand (or shift in the demand curve) that is taking place as a combination of favourable demographics and globalisation start to lift the living standards of a huge part of the global population.

    The key issue with peak oil seems to be the depletion rate, and the way in which modern technology extracts more efficiently pricewise but at the price of losing more oil for the future. The current spike in prices can only add to this wasteage in places like Russia where there will be a race to mark to market before prices fall back a bit. Surprisingly this aspect seems to be getting relatively little attention, this would be one good example of the limitations of market forces where there are input constraints in the short term.

    While I’m here, I was on holiday when you made the point about the economist argument and labour supply. I think you need to be careful here, since young China, and ol’ Germany and Japan, plus some unexpectedly flush oil exporters have savings xs, so this would need to be put on the other side of the equation (yes, I do think there is such a thing as a global savings glut, and the very low yields we have been seeing lately reflect this). So I don’t think you can balance this out as favourable to either capital or labour, it is probably favourable to both of them, ie to global growth as we’re seeing, although as this post, and others from David, indicate this growth in its turn is producing problems elsewhere.

    The labour argument has more to do with what Roach calls global labour arbitrage.

    Back to peak oil for a moment, I really can’t but see the parrallels between this and demographics and peak population, in terms of levels of uncertainty, tendency to optimistic scenarios, and the inability of the political system to deal with issues over the relevant timescale. And of course population evolution and energy consumption are, as we are seeing, intimately interconnected.

    @ Frans

    Just a detail, but I was only really addressing the demand ‘nitpicking’ piece in James Hamilton’s post. The forward predictive capacity of the financial markets is all his own work. I basically don’t buy it. I think here either you believe, or don’t believe, and as with religion I’m an agnostic since I don’t ‘believe’. I think like with the weather, prices six months forward (or in weather this would be one day) may be pretty realistic. One year out (or two days) the guesstimates might not be too bad, and more than one year (or three days) and the uncertainties compound so much that you can pretty much take your own choice.

  16. I hate to be the one to say it but…

    France. Lots of room in the countryside, defensible borders, nuclear power, efficient, not very corruptible government.

    …two out of five ain’t bad.

Comments are closed.