The Beatings Will Continue Until Morale Improves

If you’ve been following this site for more than a week, by now you’re getting a little tired of the constant explanations of Peak Oil. If there’s anything that’s going to be more annoying than the high price of gas, it’s having to read about the high price of gas. Some of you are hoping I’m going to go beyond it and write at least a little bit about what I think we should be doing. (Yes, I do read your comments.) I’m getting to that, I promise. It is necessary and overdue. Please keep hanging in there.

When I started this site, it was with one core theme: emergence. Wikipedia has a good description of the property of emergence, starting with “the way complex systems and patterns arise out of a multiplicity of relatively simple interactions.”

Steven Berlin Johnson wrote a book called Emergence: The Connected Lives of Ants, Brains, Cities, and Software (2001). In the book, Johnson explains how ants can act together and appear smarter than any one individual ant. The property of intelligence that an ant colony shows is an emergent property. The whole is greater than the sum of its parts.

The same thing holds for ideas. I thought I would explore some ideas I had that were interconnected (in my mind, anyway) and see if I could build up to a sort of whole that made sense.

Johnson wrote another book called The Ghost Map: The Story of London’s Most Terrifying Epidemic–and How It Changed Science, Cities, and the Modern World. In this book, Johnson told the story of John Snow, and how he figured out that the deadly cholera epidemic that hit London in 1854 was spread through contaminated water.

Snow published his theory that water pollution was causing the cholera epidemic for five years before finally being able to convince city authorities and the medical establishment that he was right.

I don’t plan to explain Peak Oil over and over for five years. I don’t think we have five years before energy shortages start to make the Internet something less reliable than we have grown accustomed to. But I need to keep correcting the record and trying to find ways to get this message out that there is a serious problem most of us are ignoring, and we better start dealing with it before it’s too late.

Bloomberg.com: Oil Rises Above $135 on Concern OPEC Is Powerless to Halt Rally

Crude oil rose to a record above $135 a barrel as OPEC ministers said they could do nothing to stop a rally that may be heading to $200 a barrel.

This could be my told ya so moment, but I’m not enjoying it any more than you.

Yesterday, for example, I spoke to two people active in local politics. When I brought up the subject of the high price of oil (it having gone over $135/barrel) and what I thought was behind it, I was given the following excuses and stock answers:

• We need to drill ANWR (Alaska National Wildlife Refuge)
• Can you spell bubble?
• Speculators are to blame
• Remember the tulip craze

I admire both of these gentlemen for their logic and intelligence, so I will attribute these statements to a lack of information. As long as the media continue to get this story wrong when they do notice it, the American public and its leaders will continue to be unaware of what may be coming. As soon as they get some solid facts, and are allowed to draw their own conclusions (not those provided conveniently to them), they will stop talking about tulips and bubbles.

We’re almost there: Robert Hirsch, author of the 2005 Hirsch Report (Peaking of World Oil Production: Impacts, Mitigation, and Risk Management), appeared on CNBC yesterday. Hirsch wrote that report for the Department of Energy. Please read the transcript for what Hirsch said on CNBC yesterday. Here is part of it:

There’s no single thing that’s going to solve this problem because it’s as massive as one can possibly imagine. And the prices that we’re paying at the pump today I think are going to be the good old days because others who watch this very closely forecast that we are going to be hitting $12 and $15 per gallon. And then, after that, when world oil production goes into decline, we’re going to talk about rationing. In other words, not only are we going to be paying high prices and have considerable economic problems, in addition to that, we’re not going to be able to get the fuel when we want it.

This morning, MSNBC’s Morning Joe was also getting into the subject. It looks like the idea is finally taking hold. Now, let’s see how long it takes Capitol Hill to notice that the problem isn’t OPEC, oil companies, environmentalists, or speculators. And we can only hope that they come up with something better than gas tax holidays, suing OPEC, or refusing to talk to Iran, Venezuela, and Cuba. Because down that path lies war.

CNN strikes again

CNN: We Were Warned: Out of Gas

Yes, Frank Sesno and CNN’s Special Investigations Unit did air a special with this title over the weekend. But the message continues to be garbled by questionable math or irrelevant statistics. As part of a list of alternatives to oil, Sesno looked into Brazil’s success with sugar ethanol:

And an astounding 40 percent of the transportation fuel used in Brazil is ethanol. Brazilians say within the next year, they won’t need to import a drop of oil. Independence. One official who was in on the ethanol program in its earliest days 30 years ago smiled impishly and told me, “We won.”

In the U.S., ethanol represents only 3 percent of the fuel we burn.

That reads like the US should be doing more, as far as ethanol is concerned. Numbers can be so deceiving. Brazil has around 50 million vehicles, and total ethanol production of 4.3 billion US gallons in 2006. The United States, with approximately 250 million vehicles (Department of Transportation, 2005), produced 4.86 billion US gallons of ethanol in 2006. The United States produces more ethanol than Brazil, but has five times as many vehicles as Brazil. Brazil has 80% fewer vehicles to fuel.

Given the high food prices that are partly driven by all that American corn being poured into our gas tanks, I’m glad that US ethanol only represents 3 percent of the fuel we burn. Want to end our dependence on foreign oil, like Brazil did? Don’t make more ethanol, drive less cars.

ANWR

What about drilling in ANWR? Is our problem that we let environmentalists keep us from domestic oil sources? Will ANWR end our dependence on foreign oil?

ANWR is expected to produce about a million barrels of oil per day starting in 2020, if we get started now. That’s if we can commit to building the infrastructure necessary. The US consumes almost 21 million barrels per day now. That number keeps going up, and imports are going to be going down, before 2020. Drilling in ANWR does not provide energy security; it won’t even replace what we will lose by 2020.

Bubbles

Price bubbles are caused by temporary increased demand, temporary reduced supply, and speculation. Price bubbles work with manufactured products, when there is an ability to calibrate demand with supply. When a natural resource like oil is depleted, it is gone forever. When there is increasing demand, any flattening or reduction in oil production, no matter how much oil is left in the ground, starts to have an effect on price. There is no scientific evidence that production will ever increase; any new fields discovered will have a hard time replacing the output lost from fields that are on the downside of the production curve.

Speculation does indeed have an effect and can drive prices higher. Speculators do what they do when they see a shortage develop. With most products, speculators run the risk of a production increase causing a drop in price. In the case of Peak Oil, speculators don’t face that risk. So let’s stop blaming speculators as the cause of the problem, recognize that they are a symptom but not the disease, (consider them a secondary infection caused by a weakened immune system) and look at how we can deal with the real problem.

Tulips

The gentleman who asked if I could spell bubble also brought up tulips. He was referring to the story of tulip mania, or tulip speculation, that took place in the Netherlands in 1637. This speculation led to outrageous increases in the price of tulip bulbs. When bulb traders realized the inflated prices for their bulbs would not hold up, they started to sell, and the bubble burst. I think the point that was being made was that demand for oil could suddenly disappear, like demand for tulip bulbs did. There are a couple of problems with this analogy.

• Nobody ever had to put tulips in their gas tanks in order to get to work or to the store to buy a quart of milk
• Tulips were never used to power windmills in The Netherlands or power plants anywhere else
• Unlike oil, you can always grow more tulips

But probably the biggest problem with the analogy is that the story of tulipmania may not be a true example of irrational speculation and bubble pricing at all.