[extropy-chat] Re: peak oil debate framed from a game theory standpoint ?

Samantha Atkins sjatkins at mac.com
Wed Sep 7 10:21:24 UTC 2005


On Sep 4, 2005, at 7:56 PM, Hal Finney wrote:

> When will the peak happen?  And what will be the consequences?   
> There are
> an enormous number of unknowns.  Probably the biggest question mark
> is the state of the Saudi Arabian oil fields.  The Saudis are quite
> secretive about their oil situation, but publicly they claim that they
> can pump oil and increase the quantity as much as the world needs, for
> many years to come.  Some experts are skeptical, but no one has access
> to the details necessary to get a firm answer to the question.
>

Yep.  Lately they seem to have toned down those claims a bit and the  
degree of skepticism and concern is rising in mainstream circles.

> That fact alone, in my opinion, renders any firm statements about when
> any peak will occur nonsensical.  There is simply not enough public
> information to make a well founded judgement of the potential oil  
> supply
> over the next decade or two.

It is a good bit more better than nonsensical.  It is possible and  
desirable to make reasonable guesstimates. We do know how lod the  
main fields are and can extapolate a ballpark guess form other large  
fields worked in similar manner in the past.  We also have some  
information on the likely reserves in new fields  In light of what  
information we do have we can make a guesstimate without it being  
nonsensical.  For decision on policy that take years to unfold it is  
mandatory that educated guesses of this kind are made.  It is also  
prudent to do so when making many investment decisions.

>
> There are other complications as well.  Chinese demand has grown
> incredibly fast the past few years, but this year its growth has  
> fallen
> off precipitously.  What will happen in the future?  The Peak Oil
> situation is highly sensitive to what happens in the Chinese  
> economy the
> next few years.

China is not going to disappear.  Even with zero growth demand will  
still outstrip supply, just less quickly.


> How on earth can a layman claim to have expertise in
> such an esoteric subject?  The Chinese government is another secretive
> and opaque institution; again there are no strong grounds for making
> firm predictions about what will happen there.

Considering its huge and growing manufacturing predominance and  
dependency on those goods by the US and many other countries it is  
pretty unlikely that China or its thirst for energy will go away.    
There are stronger grounds for expecting continued growth in demand  
from China than for the opposite expectation by quite a margin.

>
> As I have written before in other contexts, I don't believe it
> is practical or feasible for the lay person to come up with a well
> founded judgement on such difficult matters, where even the experts
> can't agree.

I don't believe being an expert is required to form an intelligent  
opinion.  Nor do I believe that waiting for a consensus of experts  
before acting is prudent.  The experts will be accused of being  
bought or having an agenda by this party or that.  We will need more  
experts to sort out the charges.  Recurse at will.  When the smoke  
clears oil is through the roof and their is no time to create  
meaningful alternatives before we are in great trouble.

>
> The U.S. government does publish a number of analyses and predictions
> of oil supply and demand issues, and they generally forecast adequate
> supplies for at least the next several years.  As far as I can tell,
> these are good faith estimates, but ultimately they rely on public
> sources of information which, as I noted above, are highly unreliable.
>

Since you have done the research I don't have to point out all the  
reasons that what the government says on the subject cannot be  
trusted at face value.

> I do put considerable faith in one other institution, which is the  
> market.
> When people are putting their own money behind what they say I am much
> more inclined to listen and believe them than when they are making  
> empty
> statements.  Fortunately we have a number of commodities markets in  
> the
> energy field, including crude oil of different grades, gasoline,  
> natural
> gas and heating oil.  The crude oil market goes out six years or so  
> and
> is in my opinion the best source of unbiased information about the  
> beliefs
> of the "smart money" as to the future course of oil supply and demand.
>
> If Peak Oil were widely seen as a likely scenario in that time frame,
> we would see increasing oil prices out in the 2008 to 2011 time frame.
> For technical reasons, these markets tend not to have large price
> differentials across the delivery years (basically because it is  
> easy to
> move oil deliveries backwards and forwards in time), so we would  
> expect
> high future prices to drag up present-day prices.  This is actually
> one of the great services of commodity markets, that they make the
> high prices of future shortages felt in the present day, encouraging
> conservation and searches for alternatives well in advance of an  
> actual
> supply/demand mismatch.
>
> But this is not what we see.  While oil prices have risen steadily
> for the past few years, they have not been led up by future prices.
> Rather, future prices three to six years ahead have consistantly  
> lagged.
> Those future prices are being dragged up by high present-day prices,
> rather than vice versa.  This is exactly the opposite of what we would
> expect to see in a Peak Oil scenario.

I am not sure that analysis is valid although I don't see an  
immediate flaw.  But I do not find it a convincing arugmunt that Peak  
Oil is not at hand.  Look back in time to how unanmiously rosy most  
of the market was right up to and even int the dot com bust.  The  
Street can be fooled or its truthfulness seriously compromised.   
There is also evidence that many parts of the Market are grossly  
manipulated.  See the Sprott report for some of this evidence at
http://www.sprott.com/pdf/pressrelease/TheVisibleHand.pdf


>
> To sum up, the answer to Samantha's question is that I am skeptical
> about Peak Oil because none of these institutions seem to show the  
> signs
> of an impending shortage.  There is no academic consensus on the  
> issue;
> industry and government seem to be downplaying the problem even  
> when it
> would seemingly be to their advantage to make people see that there  
> is a
> good reason for high prices; and market prices don't have the  
> structure
> we would expect if insiders knew about a shortage ahead.  And I would
> become more convinced of the reality of the Peak Oil scenario if these
> various institutions started showing the signs I have outlined.
>

I don't believe academia has enough data or real interest to fully  
decide such an issue.   I expect government and industry to downplay  
the problem.  I do not believe the Market is sufficiently free or  
accurate to make a tight analytical case regarding the extent of the  
problem based on current and futures prices.

Thank you for your detailed answer.  It does provide food for  
thought.  I hope I am wrong.  If I am right I will be in no mood to  
gloat in a few years.  It will be rather sad.

> There are of course limitations to this analysis; for one thing, the
> commodities markets only go out six years or so.  While the markets  
> are
> forward looking and they will anticipate shortages even beyond that  
> time
> frame, to some degree, the effect is somewhat weak.  The current data
> can't rule out a significant Peak Oil scenario much past the 2010 to
> 2015 time frame.  Of course the further out we go, the more the  
> chances
> that some kind of wild card will appear, a new technology or some  
> such,
> that could change the nature of the situation we face.
>

You said it in the beginning.  We have no real idea of the state of  
the crucial Saudi fields.  A fairly sudden decline could topple your  
argument immediately.  The current dat can not rule out Peak Oil at  
all much less after 2010.

-- samantha





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