ROCKMAN wrote:Ralfy - OK, didn't know what you were referring to...just what you said: "Cost has gone up because of peak oil." Which, as I proved in detail, is not correct. As I said: if the cost has increased because we reached PO then why have costs decreased so much in the last two years...because we've passed PO? And why did drilling costs boom as much in the late 70's as we just experienced...did we hit global PO over 40 years ago?
As I've explained many times: the year after we hit global PO we may see record high oil prices. Or we may see oil prices lower then we had seen for a decade or two. The oil price dynamic is much more complex then just a function of how much oil can be produced at some point in time.
The cost will go down briefly due to advances in technology, but in the long term it goes up due to diminishing returns. The peak oil phenomenon is part of that: because oil is a limited resource, then costs go up due to combinations of gravity and lack of oil. The same takes place for copper and other material resources.
Most assume that the effects of peak oil take place only when production peaks and reaches a decline. The truth is that they take place even before those happen and when demand has to rise significantly.
The assumption is that in an imaginary world where peak oil can be dealt with demand doesn't have to rise significantly. In the real world, it does because of increasing human population (which requires increasing basic needs) and a growing global middle class (because most human beings worldwide barely have access to basic needs and want those plus more).
One of the reasons why they want more is because that is ironically one of the reasons why oil was used: it allowed for extensive mechanized agriculture and manufacturing, both of which decreased infant mortality rates significantly and prolonged life to the point that the population boomed from around 2 billion to around 7 billion today in only around half-a-century. At the same time, the same technologies made possible a whole slew of middle class conveniences, from passenger vehicles to appliances.
Much of mechanized agriculture and manufacturing plus services are controlled by for-profit businesses, and they compete with each other. At the same time, they are funded by financial businesses that also compete each other. The reason why they use such technologies is not simply to "save" humanity but to profit from increasing sales of goods and services. And as they compete each other the drive for even-higher profits appears.
In order to attain higher profits costs have to be kept as low as possible while production is maximized. Of course, sales of what is produced has to be maximized as well, but that also means increasing costs (i.e., those who are expected to buy more goods are also the ones who are producing them, and are expected to produce more of them each time at the same labor costs). Investments in expanding production, following the previous paragraph, are gauged on expectations of high returns on investment, and given competition, ever-higher returns.
In short, this global capitalist economy requires ever-increasing profits through ever-increasing production made possible through ever-decreasing costs through the use of energy and material resources that should be available at larger amounts and at lower costs. That's not possible given peak oil, where costs go up because of diminishing returns, and which take place even before production reaches a peak and drops.
What makes matters worse is the drive for increasing production at the same or lower costs, including those involving labor. The "solution" to that problem was to increase credit, which in turn leads to more debt. Meanwhile, prices have to keep rising as supply has to keep up with demand.
Thus, we see a world where demand was expected to reach around 115 Mb/d by 2015 but did not, where it was expected that the world could continue buying oil at around $100 a barrel but could not, where the oil industry was expected to be able to pay off its previous debts easily thanks to higher-priced oil but is barely to do so:
100-mb-d-t73110.html#p1344810and with production cost rising for reasons given earlier:
oil-prices-will-never-recover-pt-3-t72804.html#p1325112all based partly on the phenomenon of peak oil.
In the end, one realizes that the "dynamic" goes beyond drilling costs and checkbooks.