Thursday, August 18, 2005

Peak Oil

Am i the only person that thinks high oil prices are a good thing? Today's NZ Herald has an alarmist op-ed piece by Mr Kevin Moore, energy spokesman for the Direct Democracy party, on a current buzzphrase: peak oil.
Any finite resource (and most agree that oil is finite for all intents and purposes) that is consumed must run out eventually. Hence if you look at a graph that combines oil usage and oil discoveries over time you should see a curve that goes up, reaches a maximum and then starts to decline, hence 'peak oil'. I guess 150 years ago, you could have had 'peak kauri trees' or 'peak buffalo' in the USA. So why should we be concerned with peak oil? The theory is that society is going to start crashing down around us pretty soon after we reach the 'peak oil' point in time (i should mention here that there are many estimates on just when this peak occured/will occur, a small change in one of many initial assumptions can have a dramatic effect on the result) due to the resulting collapse of energy resources for things like electricity, transport and manufacturing. In this post, i'll consider the points raised by Mr Moore and then see if i can learn a little more about him and his political party on the web.

From memory, energy usage derived from oil in nz, is about 40% transport, 40% electricity and 20% other. Hence, if you want to make a big impact on NZ energy consumption, the easiest places to start are electricity and transport, so i'll mainly focus on those two.

From a market perspective, economics places less value on things when they are plentiful and eventually higher value on the same thing when it is scarce. The value (read: price) should tell people that unless they really, really want it, go find something else or figure out a way to make the same thing cheaper. This is the 'price signal' that economists love to talk about and it is indeed a powerful signal that change should happen. However, the market can sometimes/often deviate from perfection and there is a time delay between the signals and the behaviour. Soemtimes the signals aren't allowed to develop i.e. govt regulations or the behaviour carries on longer than it should i.e. dotcom/housing bubbles. In addition, if something doesn't easily have a price tag (or a discoverable price), economics is not so good at adding the pluses and minuses and coming up with a conclusion i.e. the Tragedy of the Commons, a topic so important it deserves its own post, and from what i can tell, sorely overlooked in the practice of economics.

So a good place to start might be to wonder if peak oil and prices are changing rapidly based on new information. People have known about the lack of new oil discoveries but haven't been worried until now since they could still buy their oil quite cheaply. If China and India start to want oil as much as the rest of the developed world, they might be prepared to pay more for it. If we can't produce more of the stuff, the price will go up. This seems to be happening.

If things get more expensive, you would also expect behaviours to change i.e. cars that have bad fuel efficiency (low km's per litre) such as V8's or SUV's, should start selling less and more efficient/smaller cars should start selling more. Apparantly this behaviour is being observed in the US (and as a small car owner in the UK I am laughing my arse off at people moaning about petrol prices!). It's worth mentioning here that fuel efficiency in America peaked in the mid-80's and has declined ever since. Let me type that again slowly, i t p e a k e d i n t h e m i d - 8 0 ' s.
Sounds like price signals haven't been too clear in the US for a long time.

So should i be worried if petrol costs more? The only thing that counts is how much it costs me to get where i'm going. If petrol costs 3x as much and my car gets 3x the mileage, how am i worse off? Toyota has started producing petrol/electric hybrid cars that supposedly have twice the fuel economy. Sounds like a suitable response from the market to me. There's also a credible argument that can be made about medium-density living and public transport being more likely once people can clearly see the trade-off between long commutes and living centrally.

Will society collapse? i'm going to assume that mostly we're talking about cars and electricity. I don't see any impending doom from a transport perspective, how about electricity production? There are many ways that you can get a magnet to spin past some copper wires but the most common ways involve burning oil/gas/coal, using rain fall in hydro dams or using nuclear processes. Rain fall is mostly finite, NZ has a problem with nuclear and if we run out of oil we can always burn coal (NZ has plenty of it). The big problem here is what do we value more, keeping the lights on or not generating carbon dioxide? i think the important thing here is to realise that we have moved on from the peak oil question and moved into one on poss/prob climate change which deserves it's own post.
In addition, high prices force us to reconsider what we are doing with our current supplies of electricity. Comalco for instance uses huge amounts of electricity to make aluminium, in essence, it is turning rainwater into metal. If it can't sell that metal for a price that others are willing to pay for the same electricity, perhaps to make excellent computer programs, why are we letting them do it (i suspect that they have multi-decadal price contracts locked in when electricity supply was guaranteed at the whim of govt officials)? when is their contract due to be renegotiated? if we choose not to renew it, theres a bucketload of electricity/energy available for use across NZ (i belive it's on the order of 10-15% of our current installed capacity!).

My final point with respect to electricity is that higher prices make other things more worthwhile. Don't just think solar and windmills, NZ has plenty of geothermal opportunities but the technology needed to dig 5 km holes in the ground hasn't received the same attention as sucking up liquids, burning coal or splitting atoms. All the energy you need is 5-10 km under your feet, if we desperately needed it, we could figure out how to get it. There's also lots of other ideas that will only be useful if oil costs $150 a barrel.

My biggest complaint with energy doomsayers (and based on what i've written up to now leads me to believe they are doomsayers) is their sad lack of imagination. They must honestly believe that we already know and can do everything that is possible. It reminds me of the story about the scientist who projected the population of London from 1850 to 2000 and then wondered what all those people were going to do with the horse-crap that they would generate. The analysis of population growth was OK, but assuming nothing else would change in the meantime is foolish. Who knows, 50 years from now, we might have solar fusion reactors in geo-synchronous orbit beaming energy directly into satellite dishs scattered around the country ala Isaac Asimov. The reality is likely to be stranger than anything i can dream up.

Science is like any other choice, it can't do all things at the same time and priorities are often set by govt mandate (since the only real employers of scientists at academia, government and industry and industry often has timeframes of 5-10 years or less). being around at a time when great change can happen is exhilirating!

Who is Kevin Moore? How much attention should i give to his views? A quick google on 'Kevin Moore nz' shows up a lot of stuff on the Direct Democracy website. Since it's in the public domain, he must be comfortable with what it has to say.

This website reveals that within the next year or two (at best):

  • Oil extraction from wells will be physically unable to meet global demand (the evidence is from the oil industry itself).
  • Alternative energy sources like nuclear and natural gas will fall far short of compensating for expected shortages of oil. There is simply not enough time to convert over to them.
  • Massive disruptions to transportation and the economy are expected from about 2005-2007 onward as the global decline of petroleum begins.
This sort of stuff is alarmist and i disagree with all 3 points for the reasons mentioned already, and since it is nearly 2006 and i hardly think massive disruptions are occuring, i'm tempted to think this party is prone to hyperbole and exageration to push its own views.

I'll have a quick look at their Research and Development policies since its the area i can at least claim i have a qualified opinion on. All formatting is their own.
Whereas New Zealand could have had the benefit of a myriad of skills and talents, some of them bordering on genius, these have been lost to other countries or simply suppressed.
Suppressed? That sounds ominous and just a little conspiracy inspired.
New Zealand as a country must invest in these individuals and their specialised fields and ensure that where possible a positive result on our investment is returned to the New Zealand people and not, as is often the case, sold back to us by foreign companies who recognised the potential of New Zealand's own inventions and discoveries. An example of this is the late Len Southward who developed seamless welded exhaust tube during WW2 he couldn't get the idea patented so subsequently it was pinched off to the USA and now manufactured all over the world.
NZ has as much right as anyone else to do stupid things. If an inventor can't get anyone to make money with his idea, kudos to the Yanks for putting their money where their mouth is. The fact NZ doesn't commercialise it's ideas is cause for concern but only because we're being stupid, not because foreign companies are evil.

Direct Democracy will also create at least four more 'innovation park' centres similar to that in Ruakura, Hamilton; the objective being to make maximum assistance and support available through the centralisation of expertise.

"If you will not listen be silent and I will teach you wisdom" (Job 33:33)
Try telling Bureauc-rats this.
I don't see how calling government employees, who by and large are probably doing the best they can, 'rats' is going to help bolster your arguments. I stopped reading at this point, once i got to the religous quotations that seems to be trying to tell me shut up and do what i'm told, i lost patience. This party, and Mr Moore by extension, seem to be idiots prone to generalistations, hyperbole and conspiricy theories. I've wasted enough of my time thinking about him and shame on the NZ Herald for putting this claptrap on their site, is this the best they can come up with for contributions?

Energy policy in NZ is a very important topic, it dominates the news every time we have 4 weeks of uninterrupted winter sunshine across the country, but to demean the issues involved with purile analysis like this is an insult. It's too important to be a fringe topic dominated by a loud and from i can tell, strangely bizzare, minority.

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