December 18, 2011

Can the US raise oil production enough to make N. America oil independent?

Yes, that's very likely (although the most important factor, by far, is declining consumption) But, that's not good enough. The whole world needs to kick it's addiction to oil:

1) N. American oil independence isn't nearly good enough: imports from Canada and Mexico hurt the balance of trade just as much as Saudi imports.

2) US oil independence isn't nearly good enough:

a) import dependence for many other countries makes their economies vulnerable to oil shocks - that leaves the US almost as vulnerable as it is now.

b) import dependence for many other countries makes them militarily vulnerable - that's unacceptable to the US (that's realpolitik).

c) The US would still be vulnerable to the disruption of oil shocks in the form of high prices.

3) oil is too expensive, even if it's domestic.

4) oil is polluting.


That said, I think intellectual rigor/honesty demands that we acknowledge that US oil production is rising due to price incentives.

The Bakken oil's production peaked in 1992, and reached a low point in 2004. Anyone looking at that and looking no further than 2004 would see a classic peak. It hasn't peaked, like gold mining for instance: the current level is far above the peak, which the gold analogy wouldn't predict.

Just as important, Bakken production is very profitable.

One might ask: "Haven't Bakken production increases only taken up the slack created by declines in Alaskan production? I'd say that it's misleading to pair those two things. It's a way of saying that we can't raise US production, and that's not realistic. Overall US liquids production has risen pretty significantly from it's bottom several years ago.

The lesson here: prices and market responses are still important, even for oil. it's not all geology: if the price rises, supply will respond in a significant way.

Again, we need to transition away from oil ASAP. Recent increases in domestic production don't change that at all.

November 9, 2011

Will developing economies get greater value from oil, and therefore out-bid the US?

Not really. Consumption of marginal value is...of marginal value. The US doesn't really lose much if it cuts down on fuel consumption that doesn't benefit the user very much.

For example, if people use a Prius instead of a Chevy Tahoe (reducing fuel consumption by 75%), they may have lost a little bit of status, comfort, acceleration and crash safety, but...they get to work just fine.

Similarly, if they move from a Prius to a Volt (reducing fuel consumption by another 75%, to the point that ethanol could provide all of the non-electric miles), they may pay a bit more upfront, but over the Volt's lifetime they'll come out ahead. A little frontloading of expenses seems like a pretty small price to pay, especially when a Volt (like EVs in general) has much better road performance.

There are many more examples: shipping companies may lose a tiny bit of flexibility by moving from trucks to rail; water freight may have to retrofit skysails, reduce speed a little (a 20% speed reduction gives a 50% fuel consumption reduction), and eventually go to specialized batteries which might require more stops in port for battery switching; makers of packaging may have to find ways to maintain structural strength while reducing plastic content; chemical companies may have to add a process step or two to use non-oil sources of hydrocarbons; middle income shoppers may go online, and consolidate a few trips while they're waiting for their Prius to arrive; lower income drivers will have to go to lower-status higher-mileage older small cars (whose depreciation cost is so low that it offsets higher repair costs) while they wait for Priuses to arrive in used car lots; telecommuting would make managers uncomfortable.

None of these are a really big deal - their development diverts R&D away from other productive uses, and slow the economy down a bit during the transition, but it's not TEOTWAWKI.

In the long-term, oil consumption will be strongly non-linear. Above about $80, investment grows in alternatives, especially batteries. As both R&D and manufacturing volumes increase, innovation and economies of scale are creating disruptive competitors whose costs will reasonably soon start to fall well below the old oil-based price norms - at that point oil consumption will continue to fall even if oil prices start falling.

At that point, oil exporters will be in deep trouble, and wish they had saved as many of those T-bills as they could....

September 29, 2011

Are electric vehicles fun to drive?

Yes. It looks like they're much more fun than conventional gas vehicles. The technical details: Power equals torque. ICE engine ratings traditionally are for peak torque. For EVs, we see that immediate torque is more important (both at zero speed and at mid-range speeds). That instant power just makes EVs more fun to drive.

Plus, they're quieter, have less vibration, and the battery weight lowers the center of gravity and provides great traction:

"There are many reasons why we call the Chevrolet Volt the best car in the world, but the fact that it can handle 1,100 miles driven at or near 73 MPH in flawless comfort and yielding close to 37 MPG, is one of them. The marketing folks at Chevrolet need to stop comparing the Volt to only the Prius, and focus just as much comparing it against other types of premium cars such as the Volvo C30, Audi A4, Mercedes C-class and BMW 3-series -- but with the fuel economy for long trips only 10 MPG behind the Prius, instead of 20 MPG for the others.

What is the bottom-line verdict of this review? If you are okay with a modestly sized four-seat car with modest cargo space, the Volt is the market's best premium car today. With tax incentives, the car may cost you close to $40,000, which compares reasonably with other performance/luxury sedans in its class.

I give it a perfect 10 out of 10 -- a verdict I have never given to any other car, ever. It's all about superior, and in this case unique, technology."


"The car is so pleasant to drive that I can’t imagine finding early adopters to be a problem. But after that, I’d like to see the Volt become available to the rest of us. Which is why we should hope for a kind of EV arms race, for a significant drop in battery prices and a rapid expansion of plug-in infrastructure. Because after putting a couple dozen highway miles on a vehicle like the Volt, plenty of people simply won’t want to go back to a conventional car."


"The revelation of driving the Tesla is that electric cars make really fun toys. The Tesla uses electric motors and software instead of pistons and displacement to generate its super-torquey, race-car performance. But behind the wheel, you don't miss the gasoline. "

"The experience was exhilarating. "
Monday, January 25, 2010
"910 Miles Per Gallon*"
Consider how much time, capital, and engineering brainpower was invested to get the Porshe 911 to 0-60 in under 4 seconds: the first model rolled out in 1963 and they broke through the 4 sec barrier around 2005.

Tesla was founded in 2003. By 2009 it released the first roadsters which also did 0-60 in less than 4 seconds.


In November 2010 DESIGN NEWS an article by Sr. Technical Editor Charles J. Murray, Electronics entitled ‘Chevy Volt Goes Beyond Green’ reports GM engineers saying VOLT OUTPERFORMS gasoline burning vehicles. The story line underscores Pamela Fletcher’s experience with testing VOLT across the Rockies.

Murray writes: “Clearly though, its [VOLT] much more than that”’s the point, VOLT comes out as being another whole driving experience, a dimension unlike anything ICE.

September 24, 2011

What kind of car should we buy?

It seems to me that some kind of a variation on an EV (hybrid, plug-in hybrid, extended range EV, or pure EV) is the sensible answer to reducing and then eliminating oil consumption for personal transportation.

Consumer Reports said that a Prius was cost competitive at $3 gas; Kiplinger just said that the 5 year Total Cost of Ownership of a Chevy Volt is within $1,500 of a much inferior Chevy Cruze.

I only drive about 1,000 miles per year - I mostly use electric trains. Otherwise, I'd invest in something new and electric.

What do you drive?

July 23, 2011

Are we in overshoot?


What the heck do I mean by that? Well, to my mind "overshoot" suggests that humanity has exceeded the earth's carrying capacity for long enough and by a large enough margin that recovery from ecological and economic disaster is impossible.

It's not clear that overshoot as an ecological concept applies directly to modern human civilizations: humans do many things for the short term that are not sustainable, but which will be replaced when needed. For instance, the English were in overshoot in the 17th century when they over-used wood - then they switched to coal; coal has been partially replaced by natural gas, and a transition to wind is now beginning.

So, I think it's certainly possible to recover from our exceeding of earth's carrying capacity.

There's an enormous difference in difficulty between analyzing what can be done, and forecasting what is likely to happen.

It's very useful to know that there exist, with very, very little doubt, workable and affordable solutions1 to our fossil fuel problems. Humanity could, if it chose, eliminate it's carbon emissions and start pulling carbon out of the atmosphere moderately quickly. Removal of carbon from the atmosphere by agricultural and mineral sequestration is doable - just not practical as long as it's overwhelmed by new CO2 inputs.

Whether we will use them properly or, like the Vikings of Greenland, choose not to, will be up to our collective choices. As best I can tell, the primary barrier to better collective choices is resistance to change from the minority that will be hurt (car companies, oil companies, coal companies, etc, etc). This has little to do with the solutions, and is a problem for change of any kind at all.

*Edit: Personally, I'm not optimistic that humanity will choose to prevent Climate Change. As far as I can tell, the consequences of that will be pretty painful. I think it's likely that almost of humanity will survive it. The main consequence will be economic loss and migration for a minority and stagnation of living standards for the majority, while we focus most of our investments and innovation resources on managing and solving the problem.

1electrification such as electric vehicles and heat pumps; low/zero carbon sources of electricity from some combination of wind power, solar, tidal, nuclear, geothermal, etc, etc.


We can't be over confident - we should challenge all of our assumptions, evaluate all credible risks, and prepare a diverse set of options.

I think, however, that neither running out of energy due to resource limitations nor lacking the technical means to deal with climate change are credible risks. I come to that conclusion after treating resource limitations as a credible risk over 30 years ago, and looking at the issue quite carefully. I started this blog in great part to share that information with you, anyone who cares to read.

July 22, 2011

What is "BAU"? Should we change it?

Isn't the effort to replace fossil fuels with renewable energy just Business as Usual? Shouldn't we be more ambitious about preventing growth that is destroying our environment?

I don't think so. We need to stop harming the environment.

Energy production per se doesn't harm the environment, Green House Gases do. Wind, solar, nuclear don't emit GHGs.

Industrial production per se doesn't harm the environment - careless mining and waste disposal do. Careless mining and waste disposal aren't essential to industrial production.

Economic growth doesn't harm the environment, careless expansion into wild areas does. Overfishing does. Over extraction of water does. Poaching in protected areas does. None of these are essential to economic growth.

I'm saying that

1) decoupling economic growth from environmental harm is possible;

2) decoupling is vastly preferable to deliberate reductions in overall economic activity intended solely to reduce environmental harm, and

3) decoupling is infinitely more politically possible than deliberate reductions in overall economic activity intended solely to reduce environmental harm.

Don't we want to move past simple consumerism?

Our benign management of our environment depends on our affluence and our total resources (technical, social, etc).

As countries and communities begin to be sufficiently affluent that they really "have enough", they begin to stop acting out of being scared for themselves, their families and communities, and start acting out of compassion for others, including other species.

They begin to expand the circle of "family", "tribe" and "community" to include other countries and religions, and other species.

They start to climb the Maslow hierarchy, and find fulfillment in people, life and ideas rather than consumption.

Affluence doesn't guarantee this kind of emotional/spiritual growth, but poverty certainly will prevent it.

Fear and poverty have very little silver lining.
Beware of false trade-offs. If we're in overshoot, and TEOTWAWKI is inevitable, then it's important to say so. But if "overshoot" is unrealistic, or overly simplistic, then suggesting that Peak Oil (and Peak FF, and peak other things) will cause TEOTWAWKI is only giving ammunition to those people who are desperately attempting to prevent change away from oil and FF (and other things that are counterproductive).

I would argue that "overshoot" is way too simplistic: there's no question in my mind that we've way overshot some things: the amount of CO2 we can put in the atmosphere; the habitat we can take from other species; the harvests we can take from certain natural systems, especially fish; but the idea that we're in overshoot in energy terms is highly unrealistic.

The fact is that we could replace oil and FF in general quite affordably, if we chose to.

If we only chose to...

And that choice is affected by what we say here - we need to get it right. If we say that PO will cause disaster - how can we argue with an Exxon saying the solution is purely "drill, baby, drill"?? If we say that we're about to run out of coal, how do we argue with those who suggest that we don't have to reduce our use of coal because we're going to run out fairly quickly anyway?

July 21, 2011

Is infinite exponential growth possible?

Infinite growth in energy consumption on a finite planet is impossible. At some point, won't industrial society start crumbling and free trade begin to disintegrate?

No. This is framing the question in the wrong way.

Thinking about this is kind've fun, but a bit misleading. It suggests that very long-term growth in energy consumption/production is a tenet of mainstream economics. This is highly unrealistic. the volume of goods production levels off in a form of the logistics curve. For example, US car sales (cars & light vehicles) plateaued in the 1970's. Homes, steel, appliances and other durable goods have plateaued in the the same way. Like the demographic transition for population growth, resource consumption does not show an infinite exponential pattern. Instead, it follows an S-curve, levelling off at some point.

There's no reason to think exponential growth in energy consumption will continue forever.  Again, resource/commodity consumption follows a gaussian/logistic curve, not an exponential.  And, eventually, use of virgin minerals will decline to zero.  For instance, look at primary iron smelting in the US: it's very low, because scrap recycling has replaced it.

The idea that economic growth requires commodity consumption growth is a red herring, a strawman.

Now, goods aren't the only thing an economy produces. Goods production can flatten out, while services continue to grow indefinitely. We need quite a bit more of things like healthcare, engineering, education, the arts, etc.

Besides this basic problem with this idea, there are a number of lesser problems:

1) growth in goods production could continue indefinitely, if desired: the value of goods is a function of both quantity and quality. For instance, the US car industry is still growing in inflation adjusted dollar terms because they keep adding features: anti-lock brakes, electronic stability control, low-energy tires, etc, etc.

2) Energy efficiency wasn't a priority in a low-energy cost environment - energy efficiency could be increased by 2x-10x in general. growth in energy consumption per unit of hard goods could be eliminated permanently - energy efficiency growth could continue at the rate of growth of goods production for as long as needed for the plateau in point 1.

3) large categories of energy consumption could be eliminated entirely, as a practical matter: cars and most other portable times (electronics, etc) could run entirely on ambient solar power, if necessary (yes, I know, that would be inconvenient - don't get distracted by that - it's a theoretical point which is addressing a very theoretical Original Post). Homes can be made zero-energy.

The fact is that wind, solar and nuclear can provide far more energy than we'll ever need. We have more than enough resources for indefinite economic growth, though I'm not optimistic about preventing some of the terrible consequences of our neglect of the environment, like species extinction and climate change.

Can services really grow indefinitely?

Well, until we had all of the services we needed.  Healthcare is mostly a service rather than a manufactured good: doctors and nurses don't use much energy.  They have to get to work, and the facilities they work in need to be lit and heated, but reading somebody's chart takes little energy. 

It's true that information technology takes energy, but I suspect overall such energy use is relatively small and not growing:  CRTs have been replaced with LCDs, desktops with tablets, etc.  Databases grow in size, but servers get smaller, chips get more efficient, and the electricity to power it all is relatively small.  Similiarly, drug manufacturing takes little energy.  Medical devices such as imaging (MRI, PET, CT, etc) get smaller as they get better, and use less power.  Radiology has moved from silver film to digital imaging, which consumes less energy (and a lot less labor!).

Heck, knowledge workers like doctors and programmers could use a solar powered laptop, and not consume any power at all on a direct, daily basis.

in the end: service would have to comprise essentially the entire economy

On a percentable basis, perhaps, but not on an absolute basis. Everyone would continue to have the same level of goods as they had when production plateaued, and that would work just fine. Think of cars: production levelled off because demand was satisfied. Consumers were happy. There was no deprivation.

Once we are on board that physical resources cannot grow forever, does that impose a restriction for economic activity in general in the long run?

Not at all. Again, we only need a certain level of goods - once we have them, we're fine. Then growth continues for those services we need more of.

Don't services require goods?

Take hospitals, for instance - Much of their goods consumption is related to the activities of daily living: clothing, food, etc. That consumption would take place wherever the patient was.

Arguably some of health care is specialized goods, not services: drugs, medical devices and some treatments. We could spend some time analyzing that, but I'd say the discussion above about goods applies to them: they don't take much energy to manufacture, and their volume is limited - most of healthcare costs are highly skilled services by doctors, nurses, etc.  Ultimately, training & education is people plus IT, and IT is straightforward to make sustainable through efficiency, renewable power and recycled hardware.

Radiology requires some equipment, but that equipment is durable. It doesn't grow so much as change: CT and MRI develop increased speed, resolution, etc. Actually, radiology consumes a lot fewer resources than it did 40 years ago, as it converted from silver-based film to digital imaging.  Improvements in radiology can be described as increased quality: greater imaging speed and resolution, replacement of invasive modalities with imaging,  etc

A striking trend is the movement of patients (and treatment) out of inpatient settings, and into outpatient clinics. Nursing home placement is being reduced, in favor of keeping people in their homes.

On the other hand, there's no question that many services require workplaces. Those workplaces can be made mostly zero-energy (as homes can be made zero-energy with passive house techniques), and the balance of HVAC energy can be from renewables. Emergency transportation can be via PHEV (with small amounts of biofuel or synthetic fuel).

Wouldn't demand for services eventually be satisfied?

Yes, I imagine service growth would eventually end.

A good problem to have.

This, of course, raises a larger question: don't services require a base of hard goods to operate? Education requires only people and an IT infrastructure. The same applies to most services.  If we assume population stabilizes, and "goods" stabilize, then the number of computers per person stabilizes as well. They'll just keep on providing services using the same physical amount of equipment, although the equipment quality will probably improve.

Doesn't IT require energy?

Sure, but not much in the grand scheme of things, and PC/tablet/smart phone/server energy consumption are declining even as their functionality increase. Infrastructure investment peaks and then declines - highways, churches, homes, etc. That's why we saw a cathedral building bubble in the late Gothic high period, a railroad bubble in the 1880's, an electrical generation bubble in the 1920's, and an internet bubble in the 1990's. IT infrastructure has already peaked and leveled off.

Is the delivery of services subject to productivity gains?

Sure. A lawyer can spend 4 hours drafting a brief with a pencil, or 2 with a word processor, or 1 with software with canned phrases and automated bibliography. He or she can spend an hour presenting a motion in open court, or 5 minutes filing it online. A doctor can handwrite a radiology report, or word process it, or dictate it into software that automatically transcribes it.

I think the price of services is ultimately included in the price of goods.

Healthcare is partially a corporate cost in the US, but not anywhere else in the world. How is education included in the price of goods?

Is it even possible to have a service only economy?

No - no one is suggesting that .

what you are describing is a paradigm shift? you are talking about optimizing consumption and economic management to some boundary?

I think so.

Replacing fossil fuels with renewables; taxing mineral consumption instead of subsidizing it to reduce mining and increase recycling; moving from consumerism to quality of life; etc, etc.

Pretty conservative stuff for most of my readers, I hope.

Why insist on using the word 'growth'?

Because that's what most people call it. That's what economists call it.

Growth is generally considered to mean "improvement in our daily lives". Why fight that? Why tell people their lives have to get worse, if it isn't true? That will just destroy any hope of communicating to them that we need to make changes in the way we do things.

Tom Murphy, for instance, agrees with this idea, he just prefers to call such growth "development". Google "Exponential Economist Meets Finite Physicist", and look at the epilogue (or search for "development").  He shows that his intuition is out of sync with what's really going on by suggesting that such "development" might be 400 years off, when in fact it's already a big componenent of growth in the US and OECD.

Hasn't manufacturing in the U.S. been exported, along with its energy consumption?

Not really - manufacturing output is as high as ever in the US: planes, trains and automobiles, as well as oil refining, for instance.
You've been misled by the dramatic decline in manufacturing employment, primarily caused by automation and other kinds of improvements in labor productivity. For instance, the labor required to assemble a car (the majority of which are still made in the US, though some plants are owned by foreign auto companies) is dramatically lower than it was 40 years ago. For that reason, the UAW is much smaller. Of course, anti-union transplant auto plants in the South haven't helped the UAW either...

Don't all economists favor perpetual growth?
No, they favor growth until everyone has everything they need, as discussed above.

Biologists know that exponential growth always ends in collapse.

No, they don’t. There are many possibilities that happen in the wild. Collapse happens sometimes, and sometimes population levels fluctuate/oscillate around an average level. Sometimes growth ends in a plateau. I suspect collapse is the exception.
What about species extinction and Climate Change?

I've been  talking about commodity & energy supply related limits to growth.

You're talking about environmental damage (caused by over predation, habitat loss, and GHG pollution). I agree that environmental damage is an enormous problem and risk, but it is different.
In fact, it's in large part because I believe that Climate Change is an enormous problem that I spend time correcting myths like the danger of exponential growth - Climate Change deniers love it when people say that civilization depends on fossil fuels, and they love it when environmental activists discredit themselves by saying that saving our environment depends on destroying our economy.

Don't reinforce Koch talking points...

June 24, 2011

Is aviation sustainable?

Yes, it is.

Air transport is the most difficult area in which to eliminate fossil fuels, but on the other hand:

We're going to have fossil fuels for many decades, should we want them, albeit at lower levels than today - we have time to find the cheapest and most convenient way to replace aviation FF consumption.

In the long run, 3x greater efficiency is possible, and synthetic FF-free fuel is unlikely to be more than 3x as expensive per gallon.

First, while jet fuel is probably the hardest use for oil to replace, there are a number of ways to use it more efficiently. Short term changes include replacing or reducing use of older, much less efficient planes; filling planes more fully (increasing load factor); longer and more gradual descents, reducing powered flight time; reduced time in the air waiting to land; electric "tugs" on the ground); slightly slower flying speeds; and a long list of others - ( ). A lot of the changes are operational, so they're very fast. Others, like the Boeing Dreamliner, are being delivered now. This might be expected to reduce fuel costs by roughly 1/3.

2nd, fuel is only very roughly 40% of airline costs, and oil is only part of the cost of fuel (jet fuel is higher quality, and therefore more expensive). Combined with the efficiencies discussed above, this means that if oil prices were to rise by 100%, airline ticket prices would only go up by 25%. That's not going to stop people from flying.

3rd, it's very unlikely that oil prices will rise by 100% in a sustained fashion. First, oil prices above $150 would slow down economic growth. 2nd, all of the major uses for oil have substitutes that are cheaper when oil rises above roughly $80. If oil prices went to $150 and stayed there for any length of time, consumers would move to carpooling, mass transit, hybrids, EREVs, EVs, rail, heat pumps, etc, etc, very very quickly. Both of these effects would keep prices from rising further, and probably reduce them from that peak.

4th, in the long term, design changes can reduce fuel consumption by 70%:

"CAMBRIDGE, Mass. — In what could set the stage for a fundamental shift in commercial aviation, an MIT-led team has designed a green airplane that is estimated to use 70 percent less fuel than current planes while also reducing noise and emission of nitrogen oxides (NOx).


"the team has found that the SUGAR Volt concept (which adds an electric battery gas turbine hybrid propulsion system) can reduce fuel burn by greater than 70 percent and total energy use by 55 percent when battery energy is included. Moreover, the fuel burn reduction and the ‘greening’ of the electrical power grid can produce large reductions in emissions of life cycle CO2 and nitrous oxide. Hybrid electric propulsion also has the potential to shorten takeoff distance and reduce noise. "

5th, fuel can be synthesized from electricity, seawater and atmospheric CO2 right now, but the costs are high - roughly $10/gallon. The Green Freedom project promises synthetic fuel for $4.50 per gallon, pretty close to where we are today, but if they never fulfill that promise we can still synthesize fuel, albeit at higher cost.

30 years is enough time for aviation to become more efficient - that will keep it going another 20-30 years. 50-60 years is enough to develop and streamline substitutes like biofuels, synthetics liquid fuels (from renewable electricity, hydrogen from seawater electrolysis and atmospheric carbon), or liquid hydrogen.

Green Fredom is probably a very, very long-term thing. Things like CTL, GTL and syncrude will continue for a very long time. It would require a very strong commitment to completely get rid of fossil fuels in the medium term.

The actual balance between efficiency improvements and reductions in synthetic fuel costs remain to be seen, but it's highly likely that we'll see synthetic fueled jets with operating costs equal to those of today's airlines.

May 26, 2011

Does US production follow a Hubbert's Peak model?

Yes. Kind've. Not quite.

Here's US oil production:

We see that the curve isn't symmetric: it rises a bit in 1985, drifts lower, then starts clearly rising in 2009.

Here's oil prices:

This illustrates an important assumption in the Hubbert model: substitution. Hubbert drew his model from his experience with individual oil fields, where depletion of the field wouldn't affect the overall market for oil. The US as a whole is larger, but when oil production in the US peaked, it could still import oil, so prices didn't rise.

Of course, it's a little more complicated: world prices rose due to the oil embargo in 1973, but price increases in the US were suppressed by price controls. Then the Iran debacle raised them in 1979, and we started to see a response by 1985, but then prices fell again. Price feedback didn't happen again until 2005 when world prices started rising - then US lower 48 production started rising again (with a several year lag).

Could this just be random variation?

Well, we have to account for 2M bpd from Bakken-type oil shale. That level of production isn't a sure thing, but it's pretty likely. If it happens, that's definitely not going to fit into random variation of a Hubbert type bell-shaped curve.

Again, the increase from the Bakken (and other fields like it, like the Eagle Ford and the Niobrara) is not due to random variation in discovery. The Bakken increase is due to a change in technology/techniques/engineering - the field has been known for decades, but up to 400B barrels have been out of reach until lately (That's the total theoretical resource. The official estimate of recoverable oil was about .1% of that up to about 3 years ago, then it went to about 1%. Now we're seeing industry estimates of 24B being recoverable - a 6x increase over just 3 years ago).

A Hubbert Linearization of the Lower 48 (using only production data through 1970) showed estimated URR of about 200 Gb, through 1970 the Lower 48 had produced about 100 Gb. Doesn't that suggest that it's unlikely that the Lower 48 will produce much more than another 100GB?

Well, the Lower 48 produced 91.3 Gb from 1971 through 2011, and production is at 1.8Gb per year and rising. I'd say it's pretty clear we'll exceed 100 GB post-1970 by a wide margin.

Will these shale plays will make a really material difference?

The latest estimate is for about another 24 GB from the Bakken alone. "Production results for the Bakken formation in the Williston basin continue to improve with technological advances, prompting Continental Resources Inc. to estimate potentially recoverable reserves of 24 billion boe."

The Eagle Ford is also important: The Eagle Ford is also important: "With the Eagle Ford Shale alone now expected to eventually deliver 750,000 to 800,000 b/d of oil, industry leaders repeated their growing enthusiasm Monday for a newfound focus on US oil plays over natural gas."

It seems to me that analysis of our historical experience leaves out two key things: technical change, and price feedback.

Much of our historical experience is based on periods where there wasn't a great deal of technical change, and on a field-by-field and country-by-country analysis, where depletion doesn't cause a price signal feedback. In our current situation we have permanently high prices, which is a new thing. As a result, US production is increasing, and that increase appears likely to continue for a while.

I wouldn't want US domestic drilling to distract from the important thing, which is kicking the addiction to oil - the more we do so, the better off we'll be, in many, many ways. OTOH, we have to be realistic: US production is looking less and less like a Hubbert peak shape, and on the whole that's probably good.

May 2, 2011

Is Jeremy Grantham right about Peak Everything?

Jeremy Grantham, co-founder of money manager GMO with $106 billion under management, has developed an interest in resource limitations as obstacles to economic growth. See his article on GMO's web site .

Grantham's analysis is almost entirely about Peak Oil, and I'd say it's spot on: The US will face reduced growth during a transition away from oil, and many poorer countries will be in deep trouble.

The idea that we face Peak Everything is unrealistic on it's face: most of our other resources, like sun, wind, uranium/thorium, iron (5% of Earth's crust), aluminum (8.1% of Earth's crust), silicon, carbon, (etc, etc) are effectively unlimited, and will be substituted for the small minority of non-fossil fuel commodities that truly face limits, like copper. It's not hard to find good ores for these things, and the energy needed is small. The harder part is building the facilities.

Oil and copper are important, and it will take quite a bit of work to wean ourselves from oil in particular, but it can and will be done.

He talks about the move away from the trend line being too large to be random - well, that kind of technical chart analysis is silly. We know the fundamentals of what happened...China happened. Just because China dramatically raised the price of iron ore, cement, gold and silver doesn't mean that iron ore or cement supplies face any kind of limit.

It's an old fashioned short term boom and bust commodities cycle: prices rise sharply because current production capacity is exceeded. The boom has little to do with long-term trends for things like iron and aluminum, and it will go bust when China can no longer sustain 50% of it's economy going into capital investment. They're close now, with a lot of underutilized real estate sitting around waiting for buyers/tenants that aren't coming any time soon. Japan did the same thing.

China is a lot more important than any other country, as far as I can tell - it's bigger than anyone besides India, and building much more. China is consuming more right now in the way of iron, cement, etc than it ever will in the future, in order to catch up. This will end abruptly, and it's hard to imagine how that can be a quiet event.

In January of 2008 his fund's assets were $157B.

In October of 2008 Grantham was vindicated by the 2008 crash, and his fund's assets had shrunk to $120B. That's entirely understandable. But despite the bottoming and recovery of capital markets since then, his fund's assets shrank again, to $106B. He seems to be losing his touch...

April 21, 2011

Is our current monetary system sustainable?

This is a very complicated topic. I've been thinking about it (and things related to it) for a long time, and I still don't know what to think. I'd be delighted to talk about it for quite a long time - it's important and interesting. Here's some of my thinking - let me know what you think!

Here are my thoughts at this moment:

I think that the last 60 years have been quite exceptional - a real golden age. Can it be sustained? I tend to think so, but there are certainly a lot of risks.

I think the great majority of economists think that "fiat" money is a much better way to manage an economy. If you look at the years 1800-1940, you see a lot of deep recessions, like the one from about 1870-1890, which appear to have been at least partly caused by the gold standard. I think that the "establishment" (central banks, governments, big private banks, most economists, etc) isn't even considering going back to it, and would fight it tooth and nail. I suspect they'll succeed at that fight.

The fact that gold is in limited supply guarantees that under a gold standard periodic deflations will happen, most of them very painful and recessionary. A "fiat" currency can be expanded along with the economy, and a small amount of inflation (maybe 2%) can be maintained to encourage people to keep their money out of mattresses.

Hyper inflations of fiat currencies certainly have happened in the past. The biggest example I know of, Weimar Germany, was caused not by government incompetence or avarice, but more or less by fundamentals: France was taking revenge for the reparations that followed the 1870 war by demanding huge reparations from Germany after WWI, and Germany blew up their currency rather than comply and be impoverished.

The conventional explanation for the large increase in M1 is that the velocity of money dropped dramatically, so that the overall money supply (which more or less depends on "velocity x bank deposits") didn't really expand. That seems to make sense to me. Ufortunately, velocity is very hard to measure, so I'd say that the Fed is navigating by the seat of their pants. I'd say some inflation in the next few years (roughly 3-4%) is a good possibility. On the other hand, wage earners have no leverage at all, so a wage-price inflationary spiral seems very unlikely.

The level of US debt depends on what happens to oil prices and imports. Will we be smart, and move ASAP to hybrids, extended range electric vehicles like the Volt, EVs like the Leaf? Will shale-oil (like the Bakken, not Green River) production expand? We can only hope. Oil imports have dropped by 25% in the last 3 years - if we can keep that up, the US will be much stronger economically.

Regulation of the financial markets is lax, and this laxness caused the Great Recession. I'm afraid we're likely to see future bubbles and blow ups, though I'm not sure where or when. If we could figure that out, we could be rich! On the other hand, we've survived an awful lot of bubbles in the past - see "This time is different - eight centuries of fiscal folly" for proof.

April 2, 2011

How much do batteries cost? - part 7.

I've been arguing for quite a while that battery costs, like the cost of any manufactured item, depend heavily on volumes. That means that any analysis of battery costs depends on the production volume that one assumes.

Here's an article that helps clarify that:

"One carmaker willing to share a number is Coda Automotive, a small California-based electric car startup. Dan Mosher, the company’s chief financial officer, also spoke at Electric Car 2.0. “The $375 price might be fiction, but it’s a fact that the costs are coming down quite dramatically. Today, we might still be around $1,000 to $1,200 per kilowatt-hour,” Mosher said. He expects the price to reach $375 per kilowatt-hour in the next five to 10 years.

Mosher cited advantages that Coda might have, because the company manufactures offshore (in China)—but that benefit pales to the advantage enjoyed by major carmakers. Nissan, by virtue of its joint venture with Japan’s NEC Corp., has decades of experience in mass-producing lithium ion batteries. The company is projecting first year global production of the Nissan Leaf at 50,000 units.

“Can somebody really build a vehicle where they pay $375 per kilowatt-hour in 2010, I would say that’s pushing it,” Duvall said. “What they may see is forward pricing and they know their 50,000th or 100,000th vehicle will have that pricing. There’s no physical reason, based on materials and price of production, why that can’t happen.

See the rest of the article:

March 12, 2011

Resistance to Change: #7 in a Annoying Series

"Poor Exxon. They used to be the oil company that everybody loved to hate. This spawn of the Standard Oil breakup had it all: Obscene profits, the Exxon Valdez, a mean CEO who sneered at clean energy, blatant funding for climate deniers.

But now, the new ExxonMobil is just not that special anymore.

It turns out that all the big oil companies are buying elections, paying front-groups to spread lies about climate change and dumping their tiny investments in clean energy while continuing to put out soft-focus ads touting how green and socially responsible they are. And they just don’t seem to care that much about preventing oil spills either.

In these days of peak greed, you have to drill pretty deep in the oil patch to find the worst of the worst.

A real gusher

Well, after coming up with a bunch of dry holes, the environmental and government-reform movements seem to have found the activist equivalent of Old Spindletop: Charles and David Koch."


January 12, 2011

How much do batteries cost? - part 6

Battery costs, like the cost of any manufactured item, depend heavily on volumes.

We see that here:

""If (Tesla's battery structure) works, we won't have to wait for a breakthrough in battery technology to develop a relatively cheap electric vehicle," Executive Vice President Takeshi Uchiyamada, who heads Toyota's research and development, told Reuters in an interview at the Detroit auto show on Tuesday.

"It could be as low as one-third of the cost of batteries being developed by car makers, because (laptop) batteries are produced in massive volumes." Source

That 67% cost reduction includes a sophisticated liquid cooling and battery management system, and extensive internal thermal isolation, which should be at least as expensive as the Volt's battery systems, and rather more expensive than those of the much simpler Leaf systems.

The batteries being developed for vehicles should cost less than laptop batteries very soon, because it's much less expensive to manufacture larger batteries than the equivalent in the form of hundreds of tiny laptop batteries. EV volumes will grow to the point of economies of scale very quickly: if an EV like the Leaf uses the equivalent of 3,100 laptop batteries1, it only takes 85,000 EVs2, to equal the volume of about 260,000,000 laptops...

1 the Tesla has 6,813 batteries for about 53kWh - that suggests about 3,100 for the 24kWh Leaf!
2 The planned deliveries for the Volt and Leaf in 2011