Peak Oil Profits (POPs)
Posted: Sun 02 Feb 2014, 23:03:54
So here is my 13,000th post, a prediction.
Peak oil will not be a function of geologic constraints, "demand destruction", substitution or EROEI; oil production will peak because the oil business can't make enough money.
Bookmark that to be used against me later.
--
I've posted a lot on economics over the years. Mainly because economics and politics is at least equal to geology as the regulator of oil production (apologies to Marion). And of course it is economics where the pain of depletion will be felt. I started the 5 Rules for Peak Oil Prep thread and all 5 of my rules were economic in nature for just that reason. I posted my theory that oil prices would actually fall over time because the economy would be less and less able to pay and so as the price ceiling fell so would the amount produced. My first post here (13,000 Submits ago) had more to do with economic bubbles than oil. Most recently Kopits got my attention, Peak Oil Is When & Peak Investment = Peak Oil. Besides, I don't know much about geology and anyone can come up with an "economic" theory, LOL!
So it is no surprise that my Grand Unified Resource Uber-theory of Peak Oil Profits (GURU POPs) is about the one thing: profit.
--
I define profit simply as more output than input. In a for-profit oil company, the unit of measure is currency, so profitability is more money returned than invested. In a "non-profit" NOC, the units might be measured in days the rulers get to keep their heads, once that number of days goes negative, well, then the ultimate liquidation begins.
Either way the units aren't Barrels or Tons Oil Equivalent or BTUs, the unit of measure is Profit, Baby, Profit.
--
There are said to be trillions of barrels of "technically recoverable oil reserves" - I don't know how many, it mostly depends on whose fluff you're feeling. But what does that mean in terms of profit? That there exists the technical know-how to extract energy from those sources says nothing about profitability. Since nothing is going to be produced without profit, those technical reserves give no real indication of the eventual total energy that will be extracted. It's exactly like saying there exists trillions of acre-feet of "technically" potable water in the oceans. That the reserves may require more capital to extract than consumers are able to repay - plus profit - is not generally mentioned.
I'm no fan of the political manipulations financed by oil profits in almost every country where oil is found, so don't get the idea that this is a defense of the power of oil. In spite of that, profit is still required to promote investment in exploration and new production.
So the metric to watch isn't the amount of oil extracted but the amount of "profit" extracted. Production when it can be measured with any confidence at all ebbs and flows as a result of any number of conditions from technology to geology, politics, seasons and even the weather. But the one thing that must remain constant in the long run is profit.
The oil business isn't a charity after all, in fact it isn't even about energy, it's about profit. The peak of profit will signal the peak of oil.
Peak oil will not be a function of geologic constraints, "demand destruction", substitution or EROEI; oil production will peak because the oil business can't make enough money.
Bookmark that to be used against me later.
--
I've posted a lot on economics over the years. Mainly because economics and politics is at least equal to geology as the regulator of oil production (apologies to Marion). And of course it is economics where the pain of depletion will be felt. I started the 5 Rules for Peak Oil Prep thread and all 5 of my rules were economic in nature for just that reason. I posted my theory that oil prices would actually fall over time because the economy would be less and less able to pay and so as the price ceiling fell so would the amount produced. My first post here (13,000 Submits ago) had more to do with economic bubbles than oil. Most recently Kopits got my attention, Peak Oil Is When & Peak Investment = Peak Oil. Besides, I don't know much about geology and anyone can come up with an "economic" theory, LOL!
So it is no surprise that my Grand Unified Resource Uber-theory of Peak Oil Profits (GURU POPs) is about the one thing: profit.
--
I define profit simply as more output than input. In a for-profit oil company, the unit of measure is currency, so profitability is more money returned than invested. In a "non-profit" NOC, the units might be measured in days the rulers get to keep their heads, once that number of days goes negative, well, then the ultimate liquidation begins.
Either way the units aren't Barrels or Tons Oil Equivalent or BTUs, the unit of measure is Profit, Baby, Profit.
--
There are said to be trillions of barrels of "technically recoverable oil reserves" - I don't know how many, it mostly depends on whose fluff you're feeling. But what does that mean in terms of profit? That there exists the technical know-how to extract energy from those sources says nothing about profitability. Since nothing is going to be produced without profit, those technical reserves give no real indication of the eventual total energy that will be extracted. It's exactly like saying there exists trillions of acre-feet of "technically" potable water in the oceans. That the reserves may require more capital to extract than consumers are able to repay - plus profit - is not generally mentioned.
I'm no fan of the political manipulations financed by oil profits in almost every country where oil is found, so don't get the idea that this is a defense of the power of oil. In spite of that, profit is still required to promote investment in exploration and new production.
So the metric to watch isn't the amount of oil extracted but the amount of "profit" extracted. Production when it can be measured with any confidence at all ebbs and flows as a result of any number of conditions from technology to geology, politics, seasons and even the weather. But the one thing that must remain constant in the long run is profit.
The oil business isn't a charity after all, in fact it isn't even about energy, it's about profit. The peak of profit will signal the peak of oil.