Economic whimpers

I’m an optimist on the personal level.  I’m a bit of a pessimist in regard to the next decade or so – I think we’ll come out of it alright (that optimistic bit again) but I think it’s going to be a rough ride in the meantime.  One of the places of this difficulty is in regard to oil.

Now, I’ve posted before about Peak Oil.  And there’ve been a few readers who wanted to think I was one of the “OMG WE’RE GOING TO RUN OUT” people instead of reading what I was writing.  So let’s kill that up front.  We’re not going to “run out” — not swiftly.  What’s going to happen is that for one of several reasons we’re going to see the demand for oil exceed the ability to produce – gradually but consistently.  Before, I’ve said that on a theoretical basis – my argument being “in the near future”.  Now, I’ve got a date.  By the end of 2008, and possibly as early as now, demand will exceed production.  Why do I say this?  Because the EIA says OPEC needs to increase production by about 2% or it’ll happen by the end of 2007, and because the IAE says they need to increase by about 3% or it’ll happen by the end of 2007, and OPEC says that while the demand will exist they don’t need to increase yet as the overstocked inventories are plenty for 2007 (and fail to mention the need to increase to cope with 2008).  In other words, the demand is there, and production isn’t there, and the naysayer says we can manage on inventory for a while.

Now, the next rebuttal I got historically was “If the prices go up, you’ll see alternatives – currently marginal fields will become profitable and so they’ll be pumped, and shale, and wind and solar and…”  Know what?   They’re right in the long run.  But before the long run is tomorrow, and if you’re not ready for it you won’t reach the long run.  It’s the sarcasm (that’s missed by so many) from John Maynard Keynes’s statement that “in the long run we’ll all be dead”.  Before I’m dead I’ll live, and I’d rather live in peace and prosperity than disruption and poverty.  So telling me things will be great eventually isn’t rebutting the issue.  It’s ignoring it and hoping it’ll go away.

As an apparent digression, I’d like to point out another reality.  A friend of mine posted on his blog that capitalism – actually, market forces – gets things moving.  He attributes the resistance to change to  people ASSUMING things will remain as they always were.  I disagree.  Instead, the resistance is because people PREFER the status quo even when it’s uncomfortable.  They change because the discomfort of change is less than the discomfort of not changing.  There are a lot of things out there that’ll do us all better, both individually and as groups of various sizes, but doing them would be a change from how things are now.

And now we merge the lines of thought.

Starting this year things start getting uncomfortable.  The price of oil will start to climb.  The price of things that use oil will climb in response.  People will drive less, and will do other things to reduce their bills.  As the price goes up a bit more they’ll start pursuing alternatives – but they’ll still be kicking more money into the gasoline pot.  This increase in price will eventually – six months, a year, maybe two – drive businesses to re-open currently closed fields.  That will take a few months more, but it’ll happen.  And, eventually, either gas prices will come down due to demand and supply getting into synch, or we’ll have alternatives.

I don’t think we’re going to face an economic “bang” – though there are a lot of pressures, there are a lot more working to keep that small.  I do think, however, that there will be a lot of whimpering.  And while the whimpering goes on, I think the potential for a bang is a lot higher.

I’ll revisit this – it’s sparking a lot of thought in my mind – but thought I’d get it out for memory sake.

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5 thoughts on “Economic whimpers

  1. Kirk,

    Smart dude from http://www.theoildrum.com has what he calls the “Export Land Model”. The problem is that exporting countries don’t see price signals the same way importing countries do. Oil price goes up. Importing country has a recesion, exporting country has a boom. Because life is good, people in exporting company continue to buy and spend, because there is more money, they buy and spend and a faster rate. Thur their economy grows. Thus their rate of oil usage grows. Uh oh…..

    Magic Export land exports 10X of oil.
    They burn 1X of oil, they sell 9.
    They have a 2% depletion rate. (which is pretty minor, the North Sea runs at 8-10%)
    They have a 4% domestic growth rate (again pretty minor. Norway was way above this… Saudi Arabia averages 6 kids per family…. you figure it out.)

    Year 1:
    10 pumped
    1 burned
    9 sold.
    Year 2
    9.8 pumped
    1.04 burned
    8.76 sold
    2 2/3% decline in exports.
    Year 3
    9.604 pumped
    1.0816 burned
    8.5224 sold
    5.3 % decline over 2 years
    2.7 % decline this year
    Year 4
    9.41192 pumped
    1.124864 burned
    8.287056 sold
    9.2 % decline over 3 years
    2.76& decline this year

    See how the decline is accelerating? Exponential growth is a bitch. But there is no price signal to ExportLand. Heck they are awash in oil…. there is no need to conserve. As the price skyrockets their growth will probably ACCELERATE from 4% to 5% to 6%. WEEEEEEEE a non-constant exponent on an exponential function! Lets turbo charge that car speeding towards the cliff…..

    Here are some facts for you:

    Great Britain now imports oil/gas. Ask them how they like getting on their knees to blow Gasprom.

    The North Sea had a 60% decline in Exports per year the last 5 years or so. _60_%. Mostly because the GB economy and Norway’s economy was growing at a silly rate (well above 4%) while the oil was crashing at 8-10%. Yay for export land!

    Cantrell (Mexico) is in TERMINAL decline. I would not be shocked to see a 10-15% decline rate their either. Mexico won’t be allowed to decrease exports without cutting internal consumption though, this is a rule in NAFTA. (who would have thought NAFTA actually screwed Canada and Mexico?)

    So no, oil won’t “run out”. But there will be a BIG bidding war. Why does anyone want US dollars? What do we have that people want to buy? Once people don’t want US dollars, oil in the US is HUGELY expensive.(how does 25$ a gallon gas sound? That is before inflation) Can we run our economy on that? (Not as it is currently structured) Is it the end of the world (heck no, we CAN survive that) Will we behave in a logical manner to reduce our demand and transition to the next phase? LOL!!!!!! wait wait…. no LOL!!!! LOL!!!!! LOL!!!!!! Americans? Sacrifice? Reduce demand? LOLLOLOLOLOLOLOLOL!!!!!!!

  2. No, there’ll be no anticipatory — well, almost none– preparation for the change. On the other hand…

    There are a couple of points that mitigate and muddle the issue. The simplest is the fact that there are other producers besides exportland, and they DO feel price pressure. And price pressure means that places that were not economical to use before are, now. Which slows the price climb – stalls it, for a while.

    Basically, it’s going to be slow-motion. You’re right, but not as fast as you think.

  3. Kirk,

    I’m not sure “how fast I think” is. There will be oil. There will ALWAYS be oil. Even when it takes 3 units of energy to get 1 unit of oil, there will be oil.

    What there won’t be is America as we know it. That isn’t neccessarily a BAD thing since while both of us love our country, we also both think it is screwed up in a lot of ways. The question is, what does joe six pack do when he can’t afford to fill up his V10 F350 Duelie power stroke? What happens when the price of food skyrockets till it is 30% of the average American’s budget?

    Something big will happen…. if we don’t prepare and take mitigating action 20 years ahead of peak oil (peak MIGHT be now by the way) then the down slope is going to be a painful ride.

    The examples of New Orleans/Katrina lead me to believe that an automatic rifle might be more useful to me in a post peak world than love beads and some pot to smoke up and sing “Shiny Happy People”.

    Peak Oil doesn’t scare me, I can handle a world with expensive oil. People scare me, they are basically ignorant and crazy.

  4. When you speak of needing an automatic rifle post-Peak, you’re thinking “fast”. As in a fast enough decline that various levels of government and other societal checks collapse – or are at least temporarily overwhelmed till they can adjust to the new circumstances.

    See, you’re treating each of the “what does Joe six pack do when…” as a bifurcation point – a sudden shock. In reality, what’s going to happen is that the stuff will move in increments. For a while J6P will sacrifice something – a few less miles on the Duelie, a bit more ramen in the menu, and so forth. That will help with the coping.

    What happens when the groceries are 1/3 the household budget? Well, we buy cheaper food. Stretchers and fillers. Of course, the median grocery bill of $125 per week is already about 16% of the median household income (pretax), or 24% of nominal take-home (1/3 of income going to taxes and nominal benefits and so not “budgeted”). 30% becomes not much of a stretch.

    For what it’s worth, the examples of NO/Katrina are severely flawed. First, many of the news reports (the reports of shooting sprees and such) turn out to be wrong. Second, the failure of various agencies to clean and support are largely political, not systemic. It’s a lesson, but don’t take the wrong messages from it.

  5. My point Kirk, in case we are still talking past each other is:

    Peak Oil is ruled by Geology, effected by economics but ruled by geology. I am pretty much a believer in a slow peak OVERALL.

    Human REACTION to a peak is based on emotion. Peak will hit importland faster that geology would indicate.

    I will bet on an automatic rifle being more useful than a bag of pot. In all honesty though, I think a really good plan is have both…. if you can’t smoke them up, smoke them. 🙂

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