Economic impact (merged)

[Beery1]

In answer to the question in the thread title: oil lost its lustre for me somewhere around 1980, when I started commuting to work by bicycle. In my view, cars are a mug's game. You'd be better-off throwing hundreds of dollars per month in the bin than you would be by owning a car.

[Keith_McClary]

So I collected one of these, which should repay itself in fuel costs within 5000 miles of use. Call it two summers of commuting.

And if fuel gets more pricey:

[pstarr]

next this;

[pprovazky55]

I personally do not agree that the oil prouction will start to fall by 2020. If you look at the other nations, e.g. Russia, Canada, USA, Norway, Denmark and other countries around the Artic zone. The scientists predicted, that the ice should melt down earlier than they supposed, and look, these countries are dispatching their army to take over this area. All of this is because the natural resources. These nations all know about the importance of this area, and therefore I think the question about oil production to fall is quite rash.

[ralfy]

I personally do not agree that the oil prouction will start to fall by 2020. ... All of this is because the natural resources. These nations all know about the importance of this area, and therefore I think the question about oil production to fall is quite rash.

The only reason why they will start fighting over that area is because of a drop in oil production.

[shortonoil]

...A small number of analysts forecast that oil production will start to fall by 2020 - not because we are running out, but because we just won't need it.

They are almost right! Oil will begin its precipitant decline in 2022 when it hits a thermodynamic boundary; when the average world crude supply hits an of ERoEI 7.3:1. We won't need it because the economy will no longer support it.

Other than that their "guess" was pretty good!

[pstarr]

How did you arrive at 7.3:1? Is that related to the the oil expense index, total-cost-of-crude/GDP?

[soilmaker]

Here is a very interesting 2012 White paper done for the IMF on the future of oil.
http://www.imf.org/external/pubs/ft/wp/2012/wp12109.pdf

Bottom line...their models predict oil prices will likely double in the next decade due in large part to decreasing supplies. (Although they do use the words "peak oil" they are talking about it.)

The authors examine the effects of various things on the price of oil. Yes, it's true that economic slow downs do have an effect on demand, which in turn affects prices. And, better extraction technology can increase supply temporarily, but these things are not going to overcome the effects of reduced supplies.

The idea that the world's economies won't crash from higher oil prices because of declining consumption only offers small hope to me. Interestingly, the authors of the report also state that although oil sales only comprise a relatively small portion of GDP (3.5%), they caution that such high prices may have a much larger impact than current economists predict. Duhhh! They admit that this really is uncharted territory and they believe consequences could be very serious.

It has been hard for me to understand why economic experts can't see the dependence of the world's economies on oil.
JKT

[SeaGypsy]

Virtually every pundit in Europe still blathers on about 'return to growth' like the magic rabbit they just need to find the danged right hat for; when what they should be talking about is controlled retraction. Like most of the world at present, oil is part of the equation but it's key position is virtually completely overlooked in MSM & politics. All the talk is about debt. The debt would not matter if we had an equivalent to oil as an energy source, in unlimited supply at reasonable EROEI and no significant polluting effects (Unicorn). It's for dearth of this particular Unicorn that the economy as we have known it and expected to be there is rapidly dissolving.

[Keith_McClary]

Peak oil: Are we looking at it all wrong? (on PO news) discussing the NS article, makes the point:

But we hit a bigger snag when we come to the question of falling prices for hybrid and electric cars – which will happen supposedly because of the falling cost of producing lithium ion batteries. It wouldn’t have to fall enough to make hybrids and electrics cost the same as ICEs, according to the analysts – “just enough to be swallowed by [the fuel-cost] gap.” But actually, they’d have to fall further than that – and not just the battery costs. Hybrids and electric cars aren’t more expensive just because the batteries are – they’re also recouping the cost of the research, technology development and testing that went into creating them.

Plus, the price doesn’t have to fall only enough to make the overall equation, including fuel expenditures, balance out: It has to fall enough to overcome the basic economic fact that the big lump sum you spend now – or commit to spending – always looms much larger than the steady moderate amounts you’re going to save later. Have you ever heard the saying “it costs less to be rich”? That’s because people with more money can do things like invest in efficiencies that will pay off over time. People on a budget have a much harder time doing that, and will be more turned off by that higher sticker price.

I would add, hybrids are more complex and carry more weight.

"the big lump sum you spend now – or commit to spending" for many people requires finance - who is going to lend?

It would take a decade to replace the current ICE fleet if we switched to 100% EV/Hybrid tomorrow. Realistic scenarios have the latter increasing gradually over many years, and only if driven by very high fuel prices. A couple of decades to have a significant effect.

[shortonoil]

pstarr said:

How did you arrive at 7.3:1? Is that related to the the oil expense index, total-cost-of-crude/GDP?

This explanation is a little much for a post here, but I'll see if I can shorten it up a bit. The explanation lies with the implicit definition of ERoEI. When you pump oil from an oil well you do it by investing work - you are not investing energy. Energy is a property of matter, work is the result of a process, and even though they are both measured with the same units (joules, BTU, ft-lbf, etc.) they are not the same thing. The energy that comes from the well head must be converted into work (goods and services) before it can be re-input. This conversion process always incurs losses; these losses are guaranteed to occur by the Second Law.

For the global oil system the energy to work conversion efficiency is 19.6%; derived through numerical analysis of cost and production data. (It is interesting to note that the US conversion process until 1971 took place with an efficiency of 22.9%. This we can be very confident of because we know almost exactly when US fields peaked). That is, it takes 5.1 BTU of energy from the well head to re-input 1 BTU of work back into the well.

One of the several ways we came up with 7.29:1 is this: using availability analysis (sometimes called exergy analysis) we computed the Maximum Theoretical Second Law Thermal Efficiency (MTSLTE) for the hydrocarbon crude oil. Even though MTSLTE depends somewhat on the molecular weight (MW) of the hydrocarbon being tested, using the median MW of 31.6 degree sweet crude under optimal conditions and adjusting for asphaltene components (which may not be refine-able) we get 70% (octane, C8H18, has an MTSLTE of 70.2%).

The Second Law says that the very best we can do is extract 70% of the 140,000 BTU that is in a gallon of oil. That is 98,000 BTU. If we reinvest all of the 98,000 at an efficiency of 19.6%, it produces 19,208 BTU of work. ERoEI = EG/EP: where EG = 140,000 BTU (internal energy per gallon, derived from EIA data) and EP is the work invested at the well head. ERoEI = 140,000/19,208 = 7.29:1.

7.3:1 is the world average ERoEI for which below refined fuels can no longer be produced. Of course, the distribution of individual field ERoEI will have some higher and some lower than 7.3:1, but 7.3:1 is important because at that point the higher ERoEI fields will no longer be able to subsidize the lower ERoEI fields when they decline further. Lower ERoEI fields must then be shut-in as they decline in-order to maintain the minimum allowable average. Since old fields will decline faster than new fields can be brought on line (which will have a higher ERoEI) oil production will go into a rapid permanent decline. The timing of all this is determinable from the ERoEI function, or the total accumulated production distribution (CDF).

Our study, "A depletion model of world crude oil reserves", which "should" be out in a couple of months will go into this in much more detail. It is a "proved" model because its determinations can be validated by application of 1'st and 2'nd Law premises. In the meantime, I hope this answers some of your question.


The Hill's Group

[ralfy]

Peak oil: Are we looking at it all wrong? (on PO news) discussing the NS article, makes the point:

But we hit a bigger snag when we come to the question of falling prices for hybrid and electric cars – which will happen supposedly because of the falling cost of producing lithium ion batteries. It wouldn’t have to fall enough to make hybrids and electrics cost the same as ICEs, according to the analysts – “just enough to be swallowed by [the fuel-cost] gap.” But actually, they’d have to fall further than that – and not just the battery costs. Hybrids and electric cars aren’t more expensive just because the batteries are – they’re also recouping the cost of the research, technology development and testing that went into creating them.

Plus, the price doesn’t have to fall only enough to make the overall equation, including fuel expenditures, balance out: It has to fall enough to overcome the basic economic fact that the big lump sum you spend now – or commit to spending – always looms much larger than the steady moderate amounts you’re going to save later. Have you ever heard the saying “it costs less to be rich”? That’s because people with more money can do things like invest in efficiencies that will pay off over time. People on a budget have a much harder time doing that, and will be more turned off by that higher sticker price.

I would add, hybrids are more complex and carry more weight.

"the big lump sum you spend now – or commit to spending" for many people requires finance - who is going to lend?

It would take a decade to replace the current ICE fleet if we switched to 100% EV/Hybrid tomorrow. Realistic scenarios have the latter increasing gradually over many years, and only if driven by very high fuel prices. A couple of decades to have a significant effect.

The important points are seen in some of the comments to the article, especially the basics regarding the use of oil for most goods (including manufacturing EVs and petrochemicals) and energy returns.