Saturday, January 05, 2008

Why I love blogging...

Consider these two comments from regular readers:
Check out energy expert Matt Simmon's view of declining world energy supplies and ever increasing demand here: We have a genuine energy crisis approaching that few are talking about. Ethanol and biodiesel are like the proverbial finger in the dike. After hearing Matt Simmon's presentation last year I moved all my IRA money into Vanguard's energy index fund and have been very pleased. I expect the trend will continue unabated until such time as science makes cold fusion work or some other such break through occurs.
and contrast with this one: In talking to Congressman King at the Thompson event in Sioux City, he wanted me to forward this info on to you Wayne so he could read up on the premise stated by Zubrin.

Let me briefly summarize these two positions.

First, Mr. Simmons is clearly a peak-oil proponent. In the presentation above, here are some of his main points:
Conclusion #1: –Saudi Arabia will struggle to attain small production growth. Conclusion #2: –There is a real risk that Saudi Arabian oil could soon start to decline.
Conclusion #3: –When it is clear that Saudi Arabia’s oil has peaked, the world’s supply too has peaked.
The culminating call from his marshaling of energy crisis evidence is for greater oil production transparency (reporting from oil producers) in order to gauge supply more accurately.

However, Mr. Zubrin sees a plot behind all these numbers.
Fortunately, however, the claim that the world is running out of oil has no foundation whatsoever. Such claims have been made repeatedly in the past, and all have proven false. For example, as Learsy notes in Over a Barrel, in 1874, the state geologist of Pennsylvania, then the world’s leading oil producer, estimated that the United States had only enough oil for another four years. In 1914, the Federal Bureau of Mines said we had only ten years of oil left. In 1940, the bureau revised its previous forecast and predicted that all our oil would be exhausted by 1954. In 1972, the prestigious Club of Rome, using an inscrutable but allegedly infallible M.I.T. computer oracle, handed down the ironclad prediction that the world’s oil would run out by 1990. The club said at that time that only 550 billion barrels were left to humanity. Since then we have used 600 billion barrels, and are now looking at proven reserves of a trillion more. There is little new about today’s fascination with “peak oil”; since 1972, there have been repeated predictions of imminent oil-supply exhaustion published every few years by various authorities, and not one has come true. In fact, if we look at the ratio of proven reserves to consumption rate, the world has a bigger oil supply today than it ever has at any time in the past.

The argument that we are threatened with near-term oil exhaustion is simply untrue.
While it has no substantial scientific data to back it up, the “running out of oil” argument is nevertheless supported by a Malthusian faith that holds that since the world’s resources are more or less fixed, population growth and living standards must be restricted or humankind will inevitably descend into bottomless misery. Because this ideology provides a rationale for cutting consumption by the most vulnerable, it has historically been used to justify various kinds of extreme exploitation, OPEC’s global looting being only the most recent example. However, as a scientific theory, Malthusianism is bankrupt and all predictions based upon it have proven wrong. As the world’s population has increased, the standard of living has increased, and at an accelerating rate. The pompous Malthusians of the Club of Rome had their surefire computer predictions of resource exhaustion proven wrong not just for oil but for every single commodity or mineral they discussed, and all for the same reason: they failed to account for the power of human creativity. In the case of oil, we have invented a host of technologies for discovering and developing vast petroleum reserves that were simply impossible to find or recover in 1972. There is every reason to believe that this trend will continue, as most of the world, including nearly all of the sea floor, remains unexplored. [More at the second link above]
If it is uncharitable to categorize Mr. Simmons as a "peak-oiler", I will even out the offense by lumping Mr. Zubrin as a "Magic Piller" - those who persist in the belief we have a suppressed technology that can provide abundant energy if only the evil-powers-that-be would allow it. (The name derives from the eternal legend of a "guy" who invented a pill that would turn water into gasoline, but the oil companies won't let it come to market, etc.)

Surprisingly, there are solid facts in both arguments, but since each is selling a book, I immediately discount their conclusions by about 74%. The direct contradiction of their positions does highlight how unclear the outlook is for energy even for those of us in the developed world with wide access to information.

I find evidence for at least stagnating oil production persuasive.

I follow the Energy Blog which has helpful even-handed posts on these issues, such as the one from which the above chart comes. One reason I find this source useful is it's remarkably free from political or social cant, a characteristic lacking in both the above pieces.

Furthermore, I am not indifferent to this debate, but am far more optimistic about our ability to adapt to the wide range of possible outcomes and live just as happily as we do now. Both these commentators (albeit for commercial reasons, obviously) derive their urgency from the implied fear that we are hurtling toward a future of despair or at least diminished possibilities.

Hints of global conspiracies immediately indicate to me a lack of persuasive data, regardless of whether it's oil production or Opus Dei. C'mon, if there was a group of people with that kind of power, human affairs would not lurch from the extremes we have witnessed in our lives alone. Wealth and power have flowed like spilled milk all over the world as humans everywhere react and create in unpredictable ways.

This idea we are hurtling toward radically deprived lives of misery is nonsense. The human spirit is self-righting. And if energy becomes drastically scarcer, we will not just adapt, we will thrive. To be sure some will thrive better than others, but the overall picture is not as bleak as either author projects.

I do think energy will become extremely expensive in my lifetime (I'm allowing two more decades with luck). Moreover, we won't "discover" our way out of the supply-demand collision with new fuel sources. Between scarcity and climate concerns, we seem to me to be heading for much lower energy usage at every level.

The ramifications are these for me:
  • The Proximity Premium will increase. Farming close will be far more profitable than just farming big. Given this conviction cash rent bids from any given farmer should decline linearly with distance from the home farm.
  • Think electric. Anything that can be done with electricity will be, as coal/nuclear will soon yield a significant cost advantage per energy unit over liquid fuels.
  • Get used to staying home. Like our grandfather's day, going anywhere - except in electric vehicles (plug-ins) will be less casual. This may simply mean commuting radii will shrink considerably, slowing urban development considerably.
  • Commuting costs will force even larger farms to emerge in lightly populated areas as non-farm income sources will be hard-pressed to overcome the costs.
  • Become computer-comfortable for commerce and social connections. Face-to-face will be rarer.
  • Prepare for "eye-dropper" fertilizer applications. I expect to store and apply all my own fertilizers within a decade.
The myopia of American agriculture has prevented it from watching as European cousins have already begun this transformation to careful consumption of expensive inputs and official curbs on energy consumption. (Example: cars in Denmark are sales-taxed at 105%). It doesn't seem to have set back their societies or their lifestyles.

Has oil peaked? Who can tell? And that does that mean? But have faith the marketplace will let us know soon enough. And that same marketplace will balance our desires and scarcities if we have the wisdom to let it operate as openly and freely as possible.

[Thanks, John & Tom]


Brian said...

I'm interested in your statement about "eye dropper" fertilization and that you expect to store and apply your own fertilizer in the near future. Can you elaborate? Thanks

Anonymous said...

Other than the peaking of oil, Simmons other main contention is that energy demand continues to grow at a pace in excess of supply, primarily because of huge economic growth in China and India. So even if you think oil has not peaked, you have to factor in this continued growth in demand that outpaces supply which affirms your conclusion that energy will become extremely expensive.

John Phipps said...


I'll try to explain this weekend - traveling mucho right now.

Plus I need to figure out exactly what I meant.