Peak oil
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Peak Oil. Economic, Geopolitical and Societal Aspects Dr. Robert J. Brecha University of Dayton. Chautauqua Course, May 22-24, 2006. Outline. Economics Prices Futures Elasticity Societal Effects Geopolitics Social Justice. Total. ~400 Quadrillion Btu. Coal. Geothermal, wind

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Peak oil

Peak Oil

Economic, Geopolitical and Societal Aspects

Dr. Robert J. Brecha

University of Dayton

Chautauqua Course, May 22-24, 2006


Outline

Outline

  • Economics

    • Prices

    • Futures

    • Elasticity

  • Societal Effects

  • Geopolitics

  • Social Justice


World energy use

Total

~400 Quadrillion Btu

Coal

Geothermal, wind

solar, etc.

Gas

Biomass

RE

Nuclear

Hydro

Oil

World Energy Use


Us energy use

US Energy Use

Residential

Med./hvy

trucks

Commercial

Air

Light

vehicles

Transportation

Industrial

~2/3 of oil use is transportation

(Water, pipeline, rail, buses)


New territory

New Territory

In the history of oil use, we have never before experienced a prolonged period of ever-increasing oil prices


Prices of oil

Prices of Oil

BP Statistical Review of World Energy June 2005, p. 14


Futures the markets believe something is happening

Futures – The Markets Believe Something is Happening


Gdp and miles driven

GDP and Miles Driven

http://www.theoildrum.com/story/2005/10/22/235239/89


Higher prices more oil

Higher Prices, More Oil?

The Law of Supply ?

The “price-reserves relationship has its limits, because

oil is found in discrete packages (reservoirs) as opposed

to the varying concentrations characteristic of many minerals.

Thus, at some price, world reserves of recoverable

conventional oil will reach a maximum because of geological

fundamentals. Beyond that point, insufficient additional

conventional oil will be recoverable at any realistic price.”

“PEAKING OF WORLD OIL PRODUCTION:

IMPACTS, MITIGATION, & RISK MANAGEMENT” Hirsch, Bezdek, Wendling

(contracted report for DOE)


Law of supply

Law of Supply?

Ceteris paribus, if the price of a commodity increases,

supply will increase.

“… cumulative discovery explains approximately 70 per cent of

the quadratic Hubbert curve for discovery over time for the US

lower 48 states, whereas the price of oil is an inelastic factor …

Roughly 99 per cent of oil production over time is explained by

cumulative oil production. …(T)he price of oil is a fairly inelastic

factor in determining production. … The Hubbert curve can be

thought of as a limit of production.”

Translation: Geology, not economics, is the limiting factor

for both oil discovery and for production

From D. Reynolds, Using non-time-series to determine supply elasticity: How far do

prices change the Hubbert curve?, OPEC Review, June 2002, p.147-167


U s production vs price

Dramatic Improvement in Oil Field Technology

3.5

Production

3.0

2.5

70

2.0

Billions of barrels / year

1.5

Price

1.0

2002 dollars per barrel

0.5

0

0

1950

1960

1970

1980

1990

2000

U.S. Production vs. Price

“PEAKING OF WORLD OIL PRODUCTION:

IMPACTS, MITIGATION, & RISK MANAGEMENT” Hirsch, Bezdek, Wendling


Elasticity and the law of demand

“Elasticity” and the Law of Demand


Law of demand

Law of Demand

  • Ceteris paribus, if the price of a commodity increases, demand will decrease.

  • “This paper uses a multiple regression model … to estimate both the short-run and long-run elasticities of demand for crude oil in 23 countries. The estimates so obtained confirm that the demand for crude oil internationally is highly insensitive to changes in price.”

    John C.B. Cooper, “Price Elasticity of Demand for Crude Oil: Estimates for 23 Countries” OPEC Review March 2003


Peak oil

How Have We Reacted Previously?


How have we reacted previously

How Have We Reacted Previously?

Data from EIA and Transportation Energy Data Book, 24th ed.


Petroleum price and consumption vs time

Petroleum Price and Consumption vs. Time


Closed neoclassical view of the economy

Closed (Neoclassical) View of the Economy


Open biophysical view of the economy

Open (Biophysical) View of the Economy


Inflation and gdp

Inflation (and GDP)


Gdp vs gpi

GDP vs. GPI

http://www.redefiningprogress.org/projects/gpi/

http://en.wikipedia.org/wiki/Genuine_Progress_Indicator


Gpi indicators

GPI Indicators

Environmental Quality

Greenhouse Gas Emissions

Sustainable Transportation

Ecological Footprint Analysis

Air Quality

Water Quality

Solid Waste

Socioeconomic

Income Distribution

Debt, External Borrowing, and

Capital Movements

Valuations of Durability

Composite Livelihood Security Index

Social Capital

Population Health

Educational Attainment

Costs of Crime

Human Freedom Index

Time Use

Economic Value of Civic and Voluntary Work

Economic Value of Unpaid Housework and Child Care

Work Hours

Value of Leisure Time

Natural Capital

Soils and Agriculture

Forests

Marine Environment/Fisheries

Energy

http://www.gpiatlantic.org/#indicatorlist


Income and happiness in the usa

Income and happiness in the USA

  • GDP per head

  • ($, 2001 prices)

Richard Layard, LSE

% very happy


Personal savings rate

Personal Savings Rate


The hirsch report

The Hirsch Report

“PEAKING OF WORLD OIL PRODUCTION:

IMPACTS, MITIGATION, & RISK MANAGEMENT”

R.L. Hirsch, R. Bezdek, R. Wendling (Feb. 2005)

We cannot conceive of any affordable government-sponsored

"crash program" to accelerate normal replacement schedules

so as to incorporate higher energy efficiency technologies

into the privately-owned transportation sector; significant

improvements in energy efficiency will thus be inherently

time-consuming (of the order of a decade or more).


Auto lifetime

Auto Lifetime

Transportation Energy Data Book, 24th Ed.


Driving habits vs hybrids

Driving Habits vs. Hybrids

But … if the decline rate is 3 – 5 %/year?

Scenario one: Fleet grows by 0.5%/yr; no hybrids; driving amount remains const. at 11,600 mi/veh/yr

Scenario two: Fleet grows by 0.5%/yr; hybrids incr. at 25%/yr.; driving amount remains const. at 11,600 mi/veh/yr

Scenario three: Fleet grows by 0.5%/yr; no hybrids; driving cut by 10% one time to 10,440 mi/veh/yr

Scenario four: Fleet grows by 0.5%/yr; no hybrids; driving cut by 2%/yr from 11,600 mi/veh/yr


Fuel economy by speed

Fuel Economy by Speed

Driving at 60 mph instead of 70 mph could save

roughly 500,000 barrels of oil each day

Transportation Energy Data Book, 24th Ed.


Trains anyone

Trains, Anyone?


Food transportation zero order

Food Transportation: Zero-order

  • 35,000 lb. truck (empty) can haul 45,000 lbs. of freight at 5 mpg.

  • We consume ~2500 lbs. of food per year

  • Avg. of 1500 miles for food shipment

  •  17 gal. of gas for transportation per year

  • Compare to 57 boe or 2400 gal. (0.7%)


Food part ii

Food, Part II

  • We consume 3500 Cal (kcal) per day

  • Equivalent to 5.1 million Btu per year

  • Input energy ~10x or 51 million Btu/year

  • Oil/fuel - ~140,000 Btu/gal

  • Fuel input to food production = ~370 gal.

  • 17 gal. transport/370 gal. production = 4.5%


Our oil comes from

Our Oil Comes From …

  • Canada (790 × 106 bbl)

  • Mexico (600 × 106 bbl)

  • Saudi Arabia (560 × 106 bbl)

  • Venezuela (550 × 106 bbl)

  • Nigeria (420 × 106 bbl)

  • 93 other countries (2000 × 106 bbl)

  • Including - Switzerland (8000 bbl)

2005 EIA data; total imports for the year were 4.9 × 109 barrels


China

China

Economic growth in China, if that growth is coupled to increased use of fossil-fuel energy, has major implications for demand.


Peak oil

Iran

GDP/capita: $8100 (2005, PPP)


Persian gulf

Persian Gulf

http://www.eia.doe.gov/emeu/cabs/pgulf.html


Economy and energy i

Economy and Energy I

Bermuda

Luxembourg

Qatar

US

Neth. Antilles

Bahrain


Economy and energy ii

Economy and Energy II


Human development index

Human Development Index

1.2 billion

0.5 billion

4.2 billion

0.5 billion (31 African countries)

Data from UNDP Human Development Report 2005, http://hdr.undp.org


Human development index1

Human Development Index


Peak oil

World Oil Production per Capita


What do we tell them

What do we tell them?

There has been an explicit promise made to

developing countries – “we are wealthy, but you

can become wealthy as well.” Given that GDP

correlates to some extent with energy use (perhaps

more so for lower GDP countries), if the energy

sources are not as readily available in the future,

or become prohibitively expensive, how can wealthy

countries continue to hold out the hope of increasing

prosperity?


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