Peak Oil Is Fun
February 3, 2007
Website Update: OK, we moved from the Stone Age to perhaps the Bronze Age by creating a mirror of this website at newworldeconomicsmirror.blogspot.com. I personally like the $1.95 black-on-white look of this site, but it’s nice to be a bit more presentable. Also, you can post your comments there, which is a nice feature.
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Modelers of oil extraction rates have centered on 2005 as the year that world crude oil production reached its highest level. Production statistics are fuzzy at best, but there is growing evidence that these guesses were right. The US Energy Information Agency recorded May 2005 as the month of highest world oil production to date. The price was about $52/barrel then, so we see that the last 18 months of higher prices and to-the-limit development drilling has not resulted in higher production. The Oil and Gas Journal says that total production in 2006 was 0.17% higher than 2005 — less than a rounding error. There are differing opinions, including those of peak oil eminence Colin Campbell, who expects a peak in 2010. However, the increase in production from now until then is expected to come entirely from deepwater drilling, and most of that from deepwater drilling in Angola. Everything else rolls over in 2005, according to his modeling.
The rate of decline post-peak is relatively slow, however, so there is time to adjust to new conditions as long as things don’t get out of hand with wars or other such breakdowns of the existing order. Realistically, the great majority of people and their governments won’t do anything until motivated by price.
It is far easier to use less energy than it is to create more. The reason so much energy is used today is not because it is necessary for the industrial economy, but because it is so cheap that it can be easily wasted. When it is not so cheap, it won’t be wasted so much. Already, Europe, Japan and most of the rest of the developed world have energy prices much higher than those of the US. Consequently, they use less energy — in fact 50% less per capita than people in the US, and they aren’t shivering in the dark. In an environment of much higher prices and a general intent to use less energy, I think it is entirely possible for Europeans and Japanese to use 50% less than their present consumption, and for Americans to use 75% less. Thus, the first 30% or so drop in fossil fuel availability is probably not all that catastrophic. Let’s look at how that might come about.
Electricity for the home: I figured out that all of a household’s electricity needs could be provided by three 120W solar panels for a one-person household, and another panel per additional person. This powers a refrigerator, a few lights, and a computer or TV. Five panels for a family of three! Solar is one avenue where there is tremendous potential for technological improvement. We’re still using 1970s technology, essentially. While five solar panels today would cost about $4000, it is entirely possible that, in the next ten years, panel cost could be cut in half and maybe panel efficiency could go up 50%, from about 12% to about 18%. That would reduce the cost of solar panels for our little family to $1500 — for all the electricity they need for a lifetime!
Transportation: There are huge efficiency gains possible here. I was in Taipei, the capital city of Taiwan, not too long ago. It’s a lovely modern city with all the usual features of industrialized life. Everyone there rode scooters. How about if people in the US got in the habit of riding 200cc diesel scooters (or motorcycles) that got 125mpg and cost $3000? Let’s compare with a typical US car, with a total cost of ownership of $6,000/year for 15,000 miles, at $2.50 gasoline. That’s $0.40/mile, which is about what the IRS says a car costs. Now for our little motorcycle: 15,000 miles/125mpg = 120 gallons of fuel @ $10/gallon = $1,200. Repairs and maintenance: $1,000 (high). Depreciation: $500. Insurance $400. Total: $3,100. So, at $10/gallon a motorcycle costs half of what a typical (cheap) car costs today, and of course uses maybe 1/5th the fuel. Easy to park, too, but tough in winter admittedly. (It would be nice to have a 145mpg Loremo automobile as well.) You may joke that Americans are NEVER going to be caught dead riding a dinky little scooter, but I live in one of the nicer suburbs of New York and scooters are appearing on the streets, driven mostly by people over age 40. A friend of mine, who is a hedge fund manager, told me last year that his daughter asked for a scooter for her birthday (she probably would have got a BMW if she asked). At $10/gallon gas, Leonardo DiCaprio will sell his Prius for a little motorcycle and then the changeover will be complete.
While some people are anticipating that higher transportation costs will make today’s long supply chains impossible, I doubt that will be the case for at least a while. Ship transportation doesn’t use much fuel. Truck transportation does, but it takes just as much truck transportation to move goods from a factory in Los Angeles to New York as it does to move goods from a port in Los Angeles to New York. Higher prices will work these things out.
Trains are wonderful high-efficiency transportation devices, and one reason the Europeans and Japanese use so much less energy than their American counterparts is that they ride the train more often. Also, trains run on electricity, which can be provided by a windmill, nuclear power plant, etc. while autos and trucks require liquid fuel. When energy prices go up, the cost of running a train doesn’t go up as much as the cost of running a car, so trains become more attractive. Then, when more people ride the train, trains become much more economical. The automobile transportation system gets worse as more people use it, due to traffic, limited parking, air quality, noise, the ugliness of enormous roadways, etc. etc. but the train system gets better as more people use it, because the train companies can then run more trains, which means a more convenient schedule, costs go down because the costs of fixed assets (rails and stations) are spread over more riders, service gets better because the train company can hire more people, and they add more locations to the train network, which makes the network more useful because it connects more places, resulting in more riders and further improvements. People in the US have no experience with a modern train system, which runs twenty trains an hour (one every three minutes so you don’t even bother looking at a schedule), and has high-speed trains that go 150+ mph. It sure would be nice if governments would stop subsidizing auto transportation, and instead direct some of their efforts toward establishing a proper train system. By the way, for cities that are interested in establishing subway systems, apparently an elevated monorail system can be done for 10% the cost. Yes, the same effectiveness, a nice and quiet modern monorail, and one-tenth the cost of digging tunnels.
Thus, while the shorter-term solution is to trade your SUV in for a little motorcycle, the longer-term solution is a) to ride the train, and b) to live closer to work, and c) to live in an urban environment where a car is not necessary for daily living. The combination of all three would reduce the transportation energy consumption of a typical US household by 80%+ I expect.
Heating: Energy consumption for heating in the US could be easily reduced by going to individual room heating instead of central heating. We tried this for this winter, and it works great. Total investment $200. Cost savings per month: $300-plus. Energy savings per month: roughly a 75% reduction. In the longer term, people can build superinsulated houses. I know of people in Alaska with houses so well insulated that they can heat them with a light bulb. Amazing what eight inches of styrofoam can do. And what about passive-solar-heated houses? There are some people who go through winter in cold climates with no heater whatsoever, and maintain indoor temperatures of 60-70 degrees from passive solar heating alone. For commercial buildings, did you know that New York skyscrapers have to be cooled even in winter? They are heated by all the computers and lights running there.
Agriculture: Modern agriculture uses considerable petroleum inputs in processing, transportation, and fertilizer. Let’s just say that US grain production fell by 50% as a result of petroleum unavailability. A problem? Not really. A full 70% of US grain production goes to livestock feed, where its nutritional value is reduced by 90% as it is converted into meat. Thus, for 100 units of grain energy, we get 30 units of grain energy plus 70*10%=7 units of meat energy for 37 units of food energy. At 50% lower grain production, we’d simply eat less meat, which is exactly what the doctor has been saying all these years. (On a worldwide scale it’s not quite so neat, and a 50% reduction in total agricultural output may lead to some problems.) In any case, it might be nice to use less petroleum in agriculture anyway, since modern agriculture and livestock raising is something of a horror.
Maybe, in the future, we’ll just let nature make the meat herself. Modern US agriculture looks something like this: sun+petroleum inputs+chemical/bioengineered awfulness+depletion of topsoil and natural fertility+mining of groundwater resources+environmental destruction from runoff of chemicals etc.+lots of labor = grains (which are the seeds of grasses) grains+hormone injection+livestock abuse+lots of labor = meat. So, we go from the sun > (the horror of modern agriculture) + (environmental degradation) > meat. Now, before this process was initiated, there was a natural process that looked like this: sun > natural grass growth of the Great Plains > enormous herds of buffalo > meat. Actually, the natural process was more efficient and produced more meat than the modern process. How stupid is that? We see the same idiocy in modern fishing. Today, many fish are produced in fish farms, which are none too healthy by the sound of it. Yet, we know that nature is entirely capable of producing fish in such quantities that people talk of times when rivers were so thick with salmon that you couldn’t row a boat across them. So, maybe US agriculture in the future will look like this: 30% of land under cultivation today produces grains (organically); 70% of land under cultivation today is allowed to return to its natural Great Plains state, where buffalo are reintroduced and multiply; natural fisheries recover to their former abundance and allow people do less work to catch more fish. This stuff is so easy.
Politically, the process is simple. For fisheries, give everyone a tradeable legal right to catch as much fish as their average over the last five years. Open a market in these tradeable rights. Then, have the government step in and buy the rights on the market, reducing the overall number of rights available. Do this until the number of rights is cut by 50%. (Anyone caught exceeding their allotment loses their rights, and this is another way to reduce the supply.) Then, after the fishery recovers and it is possible to harvest much larger quantities of fish without reducing their overall numbers, the government can sell rights back to the market, eventually selling more rights than it originally bought. Result: more fish for everyone and a profit for the government.
Conclusion: I’ve made many of these points before, but it’s nice to see them all together in one place. We see that reducing energy use is not particularly difficult and indeed might be quite a lot of fun. Maybe the pressure of less fossil fuel availability will help push the process of evolution beyond its present, rather poor state. By the time petroleum production is down around 50% of present levels — maybe around 2040 — then things might get a bit dicier. However, by that time we would have 35 years of experience with finding new and less energy-intensive ways of doing things.