Peak Oil Anarchy

Peak Oil is indisputable, inevitable and -- probably -- imminent. As the Cheap Oil era ends & oil supplies grow ever more scarce, our consumerist, earth-eating economy will go into convulsions & industrial civilization will teeter on the brink of collapse. Best be prepared! Peak Oil could herald a Golden Age of Anarchy. In Leviathan's ashes, we could create new decentralized communities of mutual aid, solidarity against oppression, & egalitarian harmony. May this be a map to the terrain ahead!

Tuesday, January 17, 2006

Demand destruction: who gets destroyed?


a technical interlude


Economists who comment on the possible effects of world peak oil production love to ridicule those who make statements such as "demand at some point will exceed supply." Strictly speaking, those economists are right that supply and demand are always in balance. The variable that changes to make it so is price.

So an economist who accepts the possibility of an
oil peak may still believe that the marketplace will allow us to make a relatively smooth transition to a new energy economy as the price encourages the development of alternatives to oil and as demand is destroyed. The latter phrase is often glossed over. But demand destruction is at the core of misconceptions by economists about the likely course of events leading up to and following an oil peak.

A smooth transition away from oil mediated entirely by market prices essentially assumes two things: 1) a very gradual decline in oil supplies after the peak and 2) a recognition in the market price that the peak is coming long before it arrives.

Both assumptions are called into question by Robert Hirsch's study of oil depletion curves in various countries across the globe. Hirsch's study indicates that any
world peak is likely to have a sharp crest followed by a swift decline in oil production--anywhere from 3 percent to 13 percent per year if the historical record can be relied upon. Hirsch also notes that "in all cases, it was not obvious that production was about to peak a year prior to the event." This would help explain why the second assumption listed above is likely to turn out to be wrong as well. Market participants are unlikely to see the peak coming. This means that prices will only start to signal that alternatives are needed for oil long after it is too late to prevent tremendous disruptions...

The final argument on which the smooth transition idea rests brings us back to demand destruction.
An economist will properly point out that people will stop using oil for some applications and will turn to alternatives where they are available. All that is true enough. But it is worth asking what they mean by "applications." In reality, it is the poor who will stop using oil for "some applications," both in industrialized countries and across the world. If alternatives are not available or are just as expensive, they will simply have to forgo the benefits of those "applications." That will help keep a lid on oil prices, but it won't solve the problem: too little oil for all the activities that power and feed 6 billion people.

With a sudden decline in oil availability it is almost certain that agriculture, which is heavily dependent on oil and oil derivatives, will be less productive; that many marginal factories will close in short order; that tremendous financial turmoil will occur in world markets; that many people will have to do with less heat or without heat at all; that skyrocketing prices for transportation will prevent commodities including food from freely circulating around the world, and so on. In short, there would be no smooth transition.

The heightened price of oil would certainly encourage conservation--i.e., demand destruction--but that
conservation might come in the form of terrible hardship for millions and perhaps billions of people and possibly death for many. That would give a rather gruesome connotation to the notion of demand destruction. High prices would also encourage the development of alternative energy sources, but that's assuming that world society does not become so disoriented and chaotic that such efforts cannot actually be effected.

If one
assumes that the oil peak is far off and that technology will allow us to make a smooth transition to the next energy economy (and solve other related problems that threaten to annihilate us such as global warming), then there is no need to worry about the effects of sudden demand destruction in the oil markets. But, if the peak arrives soon, then no bloodless abstraction such as "demand destruction" will be able to obscure the fact that it is people who are going to get destroyed, and lots of them. [By Kurt Cobb at Resource Insights]

4 Comments:

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  • At 10:08 PM, Blogger shuemedia said…

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    We are researchers from Shih Hsin University and are launching a new
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    like to know your opinions about the topics of adoption and safety of
    new energy related technology, and your opinion about Kyoto Protocol
    related media issues. Your answers will produce valuable information
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    As thanks for your participating in our survey, we offer four
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    final page of the questionnaire. They include photos of BMW H2R
    hydrogen vehicle, BMW hybrid car, Honda hybrid cars 2001-2006 and
    Honda fuel cell vehicles. Would you please complete the questionnaire
    as part of the survey? Thank you for your cooperation.


    Project Leader: Mavis Tsai, Ph.D.
    Co-project Leader: Scott Warren, Ph.D.
    Researchers: PingYuan Sun, BiTing Qiou, YunZe Que

    Sponsorship:
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  • At 11:00 PM, Blogger shuemedia said…

    Dear Sir/Madam:

    We are researchers from Shih Hsin University and are launching a new
    survey, this is non-profit academic research. In this survey, we would
    like to know your opinions about the topics of adoption and safety of
    new energy related technology, and your opinion about Kyoto Protocol
    related media issues. Your answers will produce valuable information
    for our researchers. Your personal details will not be made publicly
    available. You can find the URL as below:

    http://www.e-mediasurvey.com

    As thanks for your participating in our survey, we offer four
    screen savers. The screen savers will be available for download on the
    final page of the questionnaire. They include photos of BMW H2R
    hydrogen vehicle, BMW hybrid car, Honda hybrid cars 2001-2006 and
    Honda fuel cell vehicles. Would you please complete the questionnaire
    as part of the survey? Thank you for your cooperation.


    Project Leader: Mavis Tsai, Ph.D.
    Co-project Leader: Scott Warren, Ph.D.
    Researchers: PingYuan Sun, BiTing Qiou, YunZe Que

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    Please complete the questionnaire as part of the survey, and help us
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