[Marxism] Peak Oil is now?

Joaquin Bustelo jbustelo at gmail.com
Thu Oct 25 18:48:18 MDT 2007


	I quickly read most of the report referred to in the Guardian
article cited on this list a couple of days ago, and I believe the figure of
a 7% annual decline is a misunderstanding by the author of the Guardian
article. 

	That figure is the decline in production of fields which have
reached their peak. However, not all fields have reached their peak, and a
number of new fields are starting up all the time (although, over time,
these tend to be smaller and more expensive to exploit). The projections in
the article (halving of total production by 2030) implies a rate of decline
of 3%.

	The report admits considerable uncertainty as to whether 2006 was
the peak, although it is fairly convincing that the peak may well come any
day now. Part of the uncertainty is due to 2005 Hurricane season in the Gulf
or Mexico, which damaged existing production capacity and delayed new
production. Another part of the uncertainty is whether Saudi Arabia is close
to or has reached or even gone beyond its peak production capacity. 

	One subject the article doesn't address is the possibility of
previously unexplorable and unexploitable deposits opening up due to the
very rapid disappearance of arctic ice. Undoubtedly the technological and
engineering challenges in exploiting arctic sea petroleum will be daunting,
but I have no doubt they will be overcome. 

	Another unsatisfying point is the treatment of non-conventional
sources of oil, like tar sands. The article asserts this production can only
grow slowly, but doesn't explain why that should be the case. I would think
that if there's enough money to be made, billions of dollars will get thrown
at the bottlenecks. 

	It may seem like the behavior of oil prices suggests peak oil is
here. I think more evidence is needed. Until this year, my *impression* is
that in terms of currencies like the British Pound and the Euro, oil hadn't
risen much. In 2007, the price for the "benchmark" crude oils have climbed
about 30% against these currencies, according to Bloomberg. 

	However, the benchmark barrels are of light, sweet crude varieties.
As the report the Guardian cites notes, the proportion of these kinds of
crudes is declining in relation to overall production. Since the "light,
sweet" varieties are easier to refine, they are the most expensive. It would
be necessary to investigate whether there has been a change in the relative
prices of different grades of crude.

	Also, while it is a traditional pretext to blame "speculators" for
commodity price rises, I think in THIS case that might be a factor. The U.S.
housing bubble, like the dot-com bubble before it, was created by the
existence of a lot of liquid capital looking for a place to be invested.
That money is still out there. Evidence of it is that the Wall Street hasn't
reflected the increasing economic problems in the U.S. Compared to the crazy
world of derivatives, stocks are now viewed as a safe, or at any rate safer,
investment. 

*  *  *

	"Peak Oil" is something to think about, though. The market will try
to adjust to the supply-demand imbalance until oil (and derivatives) are
expensive enough to drive down effective demand. However, with overall
supply constantly descending, this isn't going to be a one-off "shock" but
rather a prolonged period of increasingly expensive oil, gasoline, fuel oil,
diesel and so on. 

	If memory serves me right oil has just about tripled in (nominal)
price in the last 7 years or so. If we are at or near the peak of oil
production, there is no slack in the productive system to cushion a
disruption of supplies. Any major shock like Katrina could cause prices to
double in a few days. But with or without a Katrina, we're heading towards
triple-digit oil prices, both for a barrel of oil and for filling up the
tank. And eventually we'll have prices and order of magnitude greater than a
few years ago.

	This is going to throw a major monkey wrench in the machinery of
world trade. Right now transportation costs are low-to-negligible for many
commodities. But after peak oil, local producers will increasingly have the
advantage of low transportation costs. Things like apples from New Zealand
and grapes from Chile will eventually disappear from local grocery shelves.
There will be a premium on low-weight, low-volume packaging.

	The demand for collective, public transport will skyrocket.
Americans will still have cars, and to begin with the same gas guzzlers they
have now, but won't be able to afford, or won't want to spend so much of
their income, getting to and from work. 

	"Small is beautiful" will become Detroit's motto as it tries to
figure out how to charge $30,000 for a car that will seat only four people,
or even two or one. Hybrids, and eventually all-electric cars will be all
the rage, and it may well turn out to be a tremendous boom for the auto
industry as it becomes impossibly expensive to run internal combustion
engines. 

	But overall it's going to be a tremendous dislocation to the world
economy and nowhere more than in the United States. 






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