Preparing for peak oil

In amongst the flurry about what happens in the next three weeks this news story about what happens in the next 15 years caught me eye:

Senior North Shore City transport strategist Archer Davis, speaking on behalf of Engineers for Social Responsibility, said a conservative estimate of a 4 per cent annual decline in oil supply raises the prospect of a 12 per cent contraction of New Zealand’s economy over 15 years.

Peak oil came storming forward as an immediate problem several months ago as the price of oil, and petrol soared.  But one economic crisis later and it has receded from our consciousness again.  We do need to be aware though that peak oil theorists have stated that a sign that peak oil is upon us is that the price of oil will fluctuate dramatically up and down, whilst in the long term winding its way inexorably upwards – and taking everything else with it.  Note for instance Jeanette’s comments this morning about the role peak oil is playing in driving up inflation – Inflation is no longer just the result of economic boom-bust cycles but is driven by the fact that the world is reaching the limits of key natural resources.

Anyway Davis continues:

New Zealand could be left on even shorter rations as bilateral deals between producers and large consuming nations such as the United States and China sew up dwindling supplies.

Although the international body believed energy use could be reduced by 7 per cent by voluntary efforts, his conservative assessment was that New Zealand would need some type of rationing to achieve a 10 per cent cut by 2018.

Far more forceful measures would be needed to achieve the 20 per cent needed by 2022, requiring a lead time of about 10 years.

That was how long it had taken in the past to develop transport initiatives such as North Shore’s network of cycling paths and the Northern Busway.

Davis has a string of solutions but they require us to respond now while we have the time to make the long term investments we will need:

Mr Davis said New Zealand’s only hope was to “decouple” energy consumption from gross domestic product by using oil and other resources far more efficiently.

Urgent measures needed in transport included ending government subsidies for “personal car infrastructure”; stopping free parking; converting public transport vehicles, including buses, to electricity; converting motorway lanes to public transport; supporting car “clubs” of shared vehicle use rather than individual ownership; and focusing on the development of small mixed-use town centres, but not remote “dormitory” communities, to reduce travel needs.

25 Comments Posted

  1. Tane,

    Thank you, you expressed the food chain needs very well. I agree.


    Very interested in your post. When you spoke of tractors, diggers ect, you spoke of hybrids already being made. Um-m-m, sorry but please expalin hybrid what electric/diesel? Heavy machinery on electricity will be an enormous break through.

  2. Tane It will be easy to acheive the 20% reduction in fuel use by 2020 in the stated in the Herald story, using current technology and techniques. But if the worker population grows by 25% then we might have a bit of economic dislocation.

    You dfo realise that hybrid trucks, tractors and excavators are already available from the likes of Volvo, Mercedes and Kubota. The best news is that the hybrid systems offered by Volvo, Mercedes, BAE and Allison cab be retrofitted to the existing truck and bus fleet and produce 20% + fuel savings in cities and hilly back conuntry roads. Car pooling, redefining weekend retreats as holiday homes, living closer to where one works (done that myself this year) can all reduce private car fuel consumption by 20% +. Add to that mix the micro-hybrid system currently available on all Audi models (as the e option) which could be licensed to all car makers as a retrofit option on all popular models and is very clear that the market is ready to respond as the price signals emerge.

    Please note the huge difference in advanced warning for peak oil compared with the total unpreparedness for the ’70s oil shocks.

    However the point about China and USA contracting/fighting for all the major oil supply sources does make the articles modest oil reduction requirements look a bit iffy. Frog’s assessment of future oil price volatility is the best news. Five or ten years of that will drive the market response ahead of the actual decline off the current supply plateau. Note, the people at large and politicians are likely to do their best ostrich impressions but entrepreneurs and innovative corporations will smell where the money is to be made and will have what the world needs when the world needs it, at a price that will seem cheap compared with oil.

  3. “he is a lefty power freak”

    Unlike you, I know Archer, and he’s the antithesis of a power freak. I wouldn’t call him an archetypal lefty either.

    He’s one of the grown-ups getting on with finding real solutions to our situation so you can still get loaves of bread.

  4. Archer’s key point (which appears to have been missed) is that energy security (at least for the transport sector) begins with reducing subsidies for the use of private vehicles.

    Subsidies for vehicles exist primarily in the form of free parking, but also in other market distortions (tax and development incentives) that reduce land use density and encourage/prioritise/subsidise the use of vehicles.

    Internalising these subsidies and rectifying these distortions would deliver economic benefits – regardless of the price of oil and independent of technological advancements. That is Archer’s key message.

    I would not call that a “lefty” position at all; it’s actually economically liberal. It is always amazing how rabidly unaware ‘right-wingers’ are about the true cost of vehicle travel. Free-parking? Yeah right.

    Mark my words, one day – possibly when I’m Minister for Transport – Denier’s little jaunt to Pak ‘n Save will end up costing them a lot more than a loaf of bread; and we’ll all be better off for it.

  5. I was a bit concerned until I saw that he is a lefty power freak wanting to curb peoples freedoms. ‘speaking on behalf of Engineers for Social Responsibility.’
    Just another Left wing nutter. And I pay his salary from my rates just to rub this in further being a NS resident.
    Also, keeping to the MUL etc, etc. Go north I say to Orewa & beyond.
    All this while the globe has been cooling too.
    Soon it will be a crime to own a car in NZ. It will get closer if the Greens get into power.

    Anyway, off to Pak n Save in my company car to get a loaf of bread, time to enlarge my carbon foortprint.

    And where will all this extra electricity come from, a load of winmills somewhere, compulsory cold showers, compulsory toxic lightbulbs?

  6. BP, the Berzin thing, its quite interesting, and certainly lot unique.

    However, lets do the sums: a low estimate for rate of drop of production is 2% per year, or about 5000 barrels per day, about 16% of that is diesel. From some searching about, Berzin can get about 1.5 barrels per of diesel per day per acre of his magic algae, so every day we need to “plant” (or whatever) about 500 odd acres of the stuff, plus have the processing plant in place. Of course, this doesn’t solve the problem of other fractions, and if diesel becomes more available than petrol then over time the car stock will switch fuels.

    I’m waaaaay short of saying this is impossible, and it may well be part of the answer, but construction on that scale is not something we sort out by lunchtime tomorrow.

  7. Of course, the marginal cost depends on demand. I seem to remember reading that Kuwait produces oil for $25 pb. So, the marginal cost could drop to $25 if demand became so low that it could all be supplied by Kuwait, but of course that would require a really massive recession. But in practice, a smaller drop in marginal cost could occur due to more plausible drops in demand.

  8. The peak they’re talking about is supply and demand peaks. They are the only peaks that matter. We can be sure of neither. Supply is a national secret in the Gulf, and demand can shift.

    But please feel free to put your money where you mouth is….

  9. Like the weather, long term trends are much easier to predict than short term fluctuations. Not in the least because speculative commodity markets have a human element — they don’t necessarily reflect actual supply and demand pressure at a given moment.

  10. BP–

    1. The peak we’re talking about is a peak in global production (total barrels per year)

    2. Peak in global production (or “plateau”, which has been iobserved to be the case with production for teh last few years despite record prices) is likely to result in wildly fluctuating prices, so what’s important is the average. The average for the year is way over $100. No point in worrying about daily peaks and troughs.

  11. Goldmans puts it at $70. Others put it at $50. And it depends which producer you’re talking about.

    You should be looking at the average cost, not the marginal cost.

  12. ““Permanently”? Let me see now. The price today: $75”

    Amazing what a bit of chaos in world financial markets can achieve.

    But as Heinberg discusses, this is below the marginal cost of production.

    “Meanwhile, however, the marginal cost of bringing a new barrel of oil into production has been rising in recent years, and now stands in the range of $80 to $100.”

    How long do you think that can last, BP?

  13. How about we be a little more positive, and praise, and encourage our brilliance?

    “Berzin, 40, a chemical engineer, knew a few things about algae: they double their mass in a few hours, produce 30 times as much oil per acre as sunflowers do and thrive in sewage or brackish water. Most important, they devour carbon dioxide, the primary culprit in global warming. Grow the stuff like a crop, and you could use it both to produce biofuel and to pull a key greenhouse gas out of the sky. In 2001, Berzin founded GreenFuel Technologies in Cambridge, Mass., to do just that. By 2007 he had algae growing at the Redhawk power plant near Phoenix, with pipes from the smokestacks running into his greenhouses, where the algae gobbled up the CO2. He is now working with a national lab to make jet fuel from his green slime.”

  14. >>Peak oil, when it really bites, will bite hard and fast. The time to transition from our current lifestyle to one able to cope with the new conditions will be very short, and the scope of the transition huge.

    Perhaps. Perhaps not. Which peak are we talking about? There are many peaks.

    This very blog predicted “my long term projections, updated to last night’s closing still show $100/bbl oil arriving permanently in July”

    “Permanently”? Let me see now. The price today: $75

    No doubt we’ll hear rationalisations, such as “yes, but we’re predicting big price fluctuations as a sign that peak oil is near…blah…blah…blah…”

    But it’s nonsense, isn’t it. You have no idea if it will bite “hard and fast”. You can’t even get short term predictions right.

    And we’ll power trucks the same way we’ll power cars. With whatever power-plant does the job. bioEthanol, perhaps. Who knows?

    Do you?

  15. Yes. So why do people assume we won’t get better at harvesting it? We always have done in the past.

    The alternative is we’ll break with tradition and won’t get any better than we are now at harvesting it.

    Occams Razor suggests to me that we will continue to get better at harvesting energy.

  16. As its hometime I’ll just pick up on one point.

    The problem, BP, isn’t to do with looking backwards or forwards, the problem is not one of technology; the problem is quite simply a supply of energy. We’ll never be able to make energy, all we can do is harvest, and harness it, and in some cases convert the form its in. There has to be a source. We are not going to invent an energy source. The best we can do today other than burning stuff is nuclear energy, and thats not as convenient as oil. Maybe one day we’ll get either nuclear fusion or cold fusion going, either of which will be quite helpful and as far as I can see, both are equally likley, though I grant you one bunch of crackpots have more kudos than the other.

    This is why renewables have a place now to give us time to figure out what to do next. But thats an unpopular view amongst many.

  17. >>>The status quo will change regardless. Change is the only constant.

    Ah! Good Ol’ Heraclitus — change is the fundamental property of the Universe 🙂

  18. BP,

    Market forces are fine, to a point. They do force change, but not always in a way that’s socially acceptable.

    Peak oil, when it really bites, will bite hard and fast. The time to transition from our current lifestyle to one able to cope with the new conditions will be very short, and the scope of the transition huge.

    For instance, you obviously like to eat, and like most Kiwis get your food from a supermarket. One that will only hold 2-3 days of stock, and relies on just-in-time delivery by a fleet of trucks, which in turn rely on more trucks to keep the distribution depots stocked. Take away cheap fuel, and this model stops working. So who’s going to stock the supermarket now? Food will make it there, but in enough quantities for everyone? In the varieties you like? And if there isn’t enough food, because the tractors on the farms aren’t working, and the distribution system is breaking down, what then?

    Market forces will dictate ‘demand destruction’ at this point. Is that the solution you’d be happy with? We will need a workable rail freight system to get goods into cities, so at least the reliance on heavy trucks is greatly reduced, and we only need light ones for local distribution.

    Forget cars, theyr’e almost an irrelevance. Tell us how the markets going to replace the important things; trucks, tractors, diggers and dozers….

  19. Is it wrong to pre-empt change and therefore adjust accordingly to minimise the impacts or maximise the benefits of that change, or do we just go ahead as always and then when hit with something like this causing such a sudden change that it will greatly disrupt the lives of many people.

  20. PS: No, you don’t need to “de-incentivise” anything. If the cost of operating a petrol powered car becomes too great, people will look for cheaper alternatives.

    Market forces….

  21. The status quo will change regardless. Change is the only constant.

    I don’t know what the future will bring. But the Greens seem to view it with a disturbing, monolithic certainty.

    This certainty is only possible if one has a very limited frame of reference….

    I blame Marx, myself.

  22. I’m afraid that the implementation of technology and human invention require us to be prepared to change the status quo – and that requires that we put incentives in place for people to do so. Electric cars may well be the answer – but they aren’t going to magically appear, there is an enormous infrastructural change that needs to happen and for that to happen we have to seriously de-incentivise (sorry, you know what I mean) personal car infrastructure (of the petrol-dependent variety)….

  23. Why do these people insist on pretending technology, progress and human invention don’t have a significant role to play?

    They’re looking into the future backwards….

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