Monday, June 21, 2010

What happens when energy resources deplete?

From the Oil Drum:

What happens when energy resources, such as oil, deplete? Many people believe that oil prices will just go up--but I don't see that to be the case. A more likely result is a future dominated by recession and debt defaults--similar to what we have been seeing recently, but trending over time to be worse. In the midst of this recession, the view may be that there is plenty of oil, if only the price were higher.

Views of Oil Prices
One view is that energy prices will rise, substitutes will be found, and prices will come back down again, perhaps settling at a somewhat higher equilibrium reflecting the cost of producing the substitute energy source. The economy will continue to function pretty much as before. The catch is that we aren't finding reasonably-priced, scalable substitutes, so this isn't happening. Oil prices are down, but not because of substitutes.

Another view, popular among those concerned about peak-oil, is that oil and energy prices will just keep rising. If scalable substitutes aren't found, some expect that oil prices will rise from their current price of $75 barrel, to $100 barrel, to $200 barrel, to $300 barrel, and eventually to $1,000 barrel or more.

The problem with this view is that it doesn't take into account the amount of money people actually have available to spend. Just because oil or energy prices rise doesn't mean that people will get additional income to cover these higher expenditures. In real life, prices can't keep going up.

I expect that what really will happen is oil prices may bounce up, but they will soon come back down again, because of recessionary impacts and credit crunches caused by high oil prices. Most of the time, oil prices will end up in the uncomfortable middle--too high for the economy to buzz along, but too low to encourage much new oil production, or much new renewable production. The result is likely to be continuing recession, getting worse over time, because of what will be generally viewed as inadequate demand for oil.

Rest of the article:


  1. For some interesting reading visit the Peak Oil discussion forum, This is a forum where people discuss subjects such as "mass die-offs".

    My understanding of the situation is that, basically, because our economy is heavily dependent on oil, when the oil starts to run out we will be fucked. Burning gasoline provides one of the highest possible energy return on investments and so we use it to grow food, transport food, and do just about everything else. In contrast, ethanol does not provide as high of an energy-return-on-investment and the amount of ethanol that would need to be consumed to produce one unit of ethanol might be greater than one unit.

    So, if the oil starts to run out and our ability to grow and transport food diminishes after decades of rapid population growth (think 30 million new Americans every decade) you can do the math. Note also that other nations have increased their oil consumption such as China.

    Let's hope that the oil doesn't start to run low in our lifetimes and that a suitable alternative that provides an equally good ROI is developed.

  2. Frank,

    Im very glad you took the time to read this. I don't know how informed you are about the peak oil problem but this I will say: the more you know the darker your outlook becomes. Peak oil and the collapse of the current monetary system give me solace about the future. When things get so nasty, I seriously doubt the creditors will have enough power to fuck with us. And if the currency goes kaboom, then they could take my devalued dollars and shove them up their asses.

    In essence, I argue that the system is so utterly corrputed, so shady, so lopsided and unjust, that it needs to fail. I dont mind a fews years of anarchy and hell, because it is neccesary to purge the system of its rotteness and a fresh start can begin. If anything, a currency collapse would benefit many of us juris debtors as our nondischargebale debt would be inflated away. For those who are liquid and are scared of their dollar holdings going poof, gold and silver are the answer.

    Peak oil is very real and will be upon us very shortly.


Real Time Analytics