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Page added on December 28, 2013

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Peak demand: the sound of a single hand clapping

Consumption

 

Speaking of “peak demand” about the present stasis in the world oil production is a little like the concept of “the sound of a single hand clapping” is an old Zen “koan.” This riddle has been solved by Bart Simpson in recent times.
The concept of “peak demand” is gaining popularity in the discussion about peak oil. It is a good example of how a discussion can get lost in a no-man’s land of unsupported ideas and concepts. Peak demand, in a certain way, is a rebuttal of the idea that we have limits to what we can do on this limited planet. So, the implication  is that the present lack of growth in world oil production (which is a prelude to the peak) and the reduction of consumption in OECD countries has nothing to do with physical limits: it is a choice we made. We decided to consume less oil because we are smart enough to have found ways to use less of it. So, you see? We are still in charge; we are still the masters of the planet.

It is a concept that, unfortunately, flies in the face of everything that’s happening around us. Maybe people have been buying more efficient cars, but it also true that they are driving less miles per year.  Simply, they can’t afford to drive as much as they used to and that hardly looks like a choice.

But, then, what is exactly meant as “peak demand”? Economists talk about demand and supply, and then state that demand must always be equal to supply. Which is fine as long as you see supply and demand as qualitative terms that help you conceptualize a market situation. You could say, “if coffee were to cost 20 dollars per cup, I would drink much less of it“. Obvious.

But the curious thing is that neither supply nor demand are measurable alone except in some rather special cases. They are two faces of the same coin: speaking of “peak demand” is a little like asking what’s the sound of a single hand (OK; I know that Bart Simpson has solved that one, but let’s not go into that….).

It is the same with “peak supply” that is a typical straw man for cornucopians who still tend to accuse peakers of saying that we will be soon “running out of oil”. We will not. Supply is determined by several factors: demand (what people are willing to spend for oil) combines with supply (how much money companies are willing to invest in extracting oil) to generate one measurable parameter, which is production. We can equate production with demand, and that’s fine. But peak oil is neither peak demand nor peak supply. It is peak production.

So, the concept of “peak oil” is the result of a dynamic evolution of production and consumption which is determined mainly by how EROEI goes down with time as extraction proceeds. It can be modeled and it leads, indeed, to a bell shaped curve. See here: www.mdpi.com/1996-1073/2/3/646

In the end, it is fine to argue about peak demand. But at some point we’ll have to stop arguing and think solutions.

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(BTW: there are cases in which you COULD reasonably speak of demand being affected by factors other than prices. Think of silver: the technology of digital photography destroyed the demand for silver for photographic film. Fine, but two things: one is that there has not been any comparable technological discontinuity for fossil fuels. The other is that digital photography didn’t reduce the silver demand. You don’t see any reduction in the silver production during the past decades. Good ol’ Jevons still rules. )

Cassandra’s legacy by Ugo Bardi



7 Comments on "Peak demand: the sound of a single hand clapping"

  1. Pops on Sat, 28th Dec 2013 3:50 pm 

    Demand = desire + affordability

    When the No Limits crowd crows about Peak Demand they would have you believe that it equates to “peak desire” when in fact it means “Peak Affordability”

  2. J-Gav on Sat, 28th Dec 2013 4:31 pm 

    Peak oil = “Neither peak demand, nor peak supply” but “peak production!”
    A good reminder from Bardi and I like Pops’ equation as well.

  3. rockman on Sat, 28th Dec 2013 5:54 pm 

    Most excellent Pops. Sometimes the simplest answer is the most powerful. I especially like the fact that one component, desire, is a constant. And that constant is huge and unchanging: when have we seen any economy reject the possibility of more energy if it were available and affordable. Even if we can’t quantify that value the equation becomes demand = C + affordability. Which obviously means demand is strictly a function of the price of oil…a point most of us already understood.

  4. Stilgar on Sat, 28th Dec 2013 7:34 pm 

    “Oh no, look, the price of oil is going way up! Darn, there do seem to be limits. What do we do?”

    “I know, during this extended plateau period of C&C, and before we get to a specific point in time that will be looked back on as peak oil, let’s call it peak demand. Yeah, sure, we’ll know it means the same thing, but it will still make the peak oil people look wrong and us right.”

  5. Tom S on Sat, 28th Dec 2013 9:30 pm 

    Stiglar:

    ” ‘Yeah, sure, we’ll know it means the same thing, but it will still make the peak oil people look wrong and us right.’ ”

    The peak oil people did not predict what has happened. Back in the mid-2000s and earlier, peak oil people were claiming that all liquids would peak and then start declining almost right away, regardless of price. Every paper from Colin Campbell and ASPO shows nearly immediate absolute declines in oil production, including unconventional oil, starting around the mid-2000s. Campbell always predicted 2% or so yoy declines once oil had peaked in the mid-2000s. Another example of this, is the prediction of future oil production from “ace” at the oil drum, which showed a peak in 2005 then 1% yearly declines until 2009, followed by 4% yearly declines thereafter.

    Nobody in peak oil circles was predicting that prices would increase and then conventional oil would plateau for many years and unconventional would increase. Most of Colin Campbell’s book entitled “The Coming Oil Crisis” was about how industrial civilization would cope (or fail to cope) with year-over-year absolute declines.

    Those predictions from peak oilers were not correct.

    I’m not saying peak oilers were wrong about everything. Predictions of peak oil and then decline around 2005 were correct for conventional oil at a certain price in many areas (specifically, outside of Russia and OPEC, whose production did not follow a Hubbert curve for political reasons).

    Also, I’m not saying the opposite side had it right either. Predictions from Michael Lynch etc of increasing production with continued low prices, were quite wrong.

    That said, the traditional peak oil perspective of predicting global oil production using a single Hubbert curve, is not sufficient. Perhaps it would be best to update that model, and use multiple Hubbert curves, one for each tranche of increasingly expensive resource.

    -Tom S

  6. Mike999 on Sat, 28th Dec 2013 10:16 pm 

    Electric Demand in the US has also peaked. Two things helped it along, technology, and ENRON.

    When Enron started, they bought out the Whole State of Texas Republican Party, and converted their electric system from a utility to a fractured market they could manipulate.

    Then they hit CA and the whole West Coast.

    Today we see ALL Commodity Markets manipulated by Wall Street, the only way to escape their pricing manipulation is to lower demand.

    What we’re also seeing is “Economic Darwinism” where Republicans are in denial and doing nothing about Wall Street manipulation of markets. So, our Democratic friends are buying Prius’s, and our Republican Friends are convincing themselves it’s not Wall Street Fraud, it’s “Obama”. The economic point is Republicans are choosing a slow economic strangulation of the Republican Base, as they’re only fooling Republicans.

  7. Makati1 on Sun, 29th Dec 2013 1:02 am 

    Energy per capita for the world has been decreasing since the 70s. That is the factor seldom mentioned. Energy = Wealth.

    I suppose only a bank of China’s super fast computers could even begin to understand the web we have woven in the last 200 years. And maybe it would be beyond even them. But, I suspect it is all about to get a lot more simple in the next few decades to where even an average person can understand what is left.

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