Gyroscopic Investing

Posted: **Mon Dec 26, 2011 9:02 am**

I thought this article over at theoildrum.com did a great job of providing a sobering context to the wild speculation that the Bakken oil fields discovery is the solution to all of our transportation energy needs by drawing on analogous data from the California and Yukon gold rushes. Interesting read for those interested in both yellow and black gold.

http://www.theoildrum.com/node/8697#more

I've been doing a lot of thinking lately about what changes the United States transportation network is going to go through over the next decade as it confronts limited energy resource realities....especially related to oil. I'm curious what others on this board think the impact on American life is going to be? Are we going to see a resurgence of dense living conditions in inner cities as people try to cut down on commuting costs? Will alternative technology allow us to continue to have unencumbered transportation and suburban lifestyles? Will rail finally find a foothold? Will the tourism and travel industry be gutted causing a decline in cities like Las Vegas?

Posted: **Mon Dec 26, 2011 6:58 pm**

Peak oil will be one of the defining issues in the U.S. in the next 20 years, along with deleveraging and demographic shift.

That's just my take, of course.

The Bakken play is basically just today's version of Alaska's North Slope from the 1980s. Both are/were nice finds, but did little to reverse the long-term decline in U.S. domestic oil production that started around 1970. Once a nation, field, or region reaches "peak oil", which is really just about the "flow rate" of a well or field, it normally enters a period of decline that can never be reversed. It's not unlike the cycle of a professional athlete, where he/she reaches some "peak" performance level, and then is never again able to return to that level of performance (this "peak" period may show up as a "plateau", but it's still a pattern of ascendance, peak, and then decline).

Anyone who has faith in alternative energy to take the place of fossil fuels should carefully think through this position. IMHO, it's a deeply flawed and ultimately delusional perspective, not unlike the "cargo cults" of the south Pacific that believed in miraculous and mysterious technology delivered from somewhere else to solve the seemingly intractable problems of society.

Posted: **Mon Dec 26, 2011 8:18 pm**

doodle wrote: Will alternative technology allow us to continue to have unencumbered transportation and suburban lifestyles? Will rail finally find a foothold?

My brother's daughter, a fresher at university, rode the Amtrak home for the holidays. The trip, which would have taken about 5 hours by car, took more than 12 hours by train--and five of those hours were from unscheduled delays en route.

If we do manage to fix passenger rail in the USA, it won't be a minute too soon.

Posted: **Sun Jan 01, 2012 6:34 am**

I think, like every other fear-mongering "resource scarcity" issue in the past, "Peak Oil" will turn out to be ballyhoo.

Over the next decade, the world will increasing switch to natural gas engines, hybrid or electrical vehicles and the whole issue will become moot. We won't be going back to the stoneage, urban centers will continue to be regentrified as the lower class continue to move out to the decaying suburbs, etc.

Theres more than just the Bakken. Theres the Marcellus, theres the Eagle Ford, theres the one that starts with P in Wyoming/Colorado.

The U.S. will be energy independent within 10 years. People always chronically underestimate that necessity is the mother of all invention, the mother of all innovation and the mother of all entreprenuership.

But first we'll have to get through all of the 12/21/2012 doomsayers this year. Oh, my lord...

MG

doodle wrote: I thought this article over at theoildrum.com did a great job of providing a sobering context to the wild speculation that the Bakken oil fields discovery is the solution to all of our transportation energy needs by drawing on analogous data from the California and Yukon gold rushes. Interesting read for those interested in both yellow and black gold.

http://www.theoildrum.com/node/8697#more

I've been doing a lot of thinking lately about what changes the United States transportation network is going to go through over the next decade as it confronts limited energy resource realities....especially related to oil. I'm curious what others on this board think the impact on American life is going to be? Are we going to see a resurgence of dense living conditions in inner cities as people try to cut down on commuting costs? Will alternative technology allow us to continue to have unencumbered transportation and suburban lifestyles? Will rail finally find a foothold? Will the tourism and travel industry be gutted causing a decline in cities like Las Vegas?

Posted: **Sun Jan 01, 2012 8:34 am**

MG,

The discovery of oil has shaped the configuration of our modern society more than I think many people realize. While I agree with you that the world is not going to go back to the stone age, I do think that dwindling oil supplies for an energy hungry world will create a period of instability and uncertainty as we envision and then transition to a new world model that is built on sustainable energy.

With regards to "peak oil"...it is something that the US has already experienced....not some theory. Currently we are producing about 5 million barrels of oil a day compared to nearly 10 million a day back in 1970...despite advances in technology, discoveries in Alaska, and deep water wells offshore.

Into this picture of scarcity, the oil shills throw out the Bakken as the solution to our problems. The EIA estimates that the Bakken will be producing about 350,000 barrels a day by around 2030 with very optimistic estimates at around 1 million barrels a day. We consume about 20 million barrels of oil a day already....so in a best case scenario this would account for about 5% of domestic consumption at current rates. This also doesn't factor in the EROI or environmental impacts of fracking which are yet to be determined.

Posted: **Sun Jan 01, 2012 8:42 am**

MachineGhost wrote: I think, like every other fear-mongering "resource scarcity" issue in the past, "Peak Oil" will turn out to be ballyhoo.

Every finite resource consumed will inevitably reach a peak of production, then decline. The question is only of timing. And peak oil is not an issue of "resource scarcity," in my mind, since only about half of the oil has been consumed at "peak," whenever that occurs. It is more about the tipping point where net energy (energy out minus energy invested) begins to decrease exponentially since energy production costs take off as the easy stuff is depleted (think tar sands vs gushing superficial oil well).

Posted: **Sun Jan 01, 2012 9:20 am**

Whether we cope or not all seems to me to be down to whether we have gross wealth inequality. One way things could go would be to have oil equally unaffordable for everyone. That would be the case today if all 7bn people on Earth were equally well off. Then alternative energy would get developed promptly. The unemployed would all get employed building the infrastructure for existing alternative energy technologies. GoldmanSachs would not be able to outbid advanced alternative energy developers when recruiting staff etc etc. The other (more likely

) approach will be to ensure that as oil becomes more expensive, a smaller and smaller elite continues to fly around in private jets being self important with financial power being exerted to ensure that no one else can either afford oil or afford to employ people/work themselves to develop alternatives.

Posted: **Sun Jan 01, 2012 12:41 pm**

MachineGhost wrote: ...necessity is the mother of all invention, the mother of all innovation and the mother of all entreprenuership.

I agree with this statement, but it's not always a smooth ride.

Necessity is certainly a motivator, and in the right conditions can lead to a lot of creativity. But just because we need something doesn't mean that we're always going to have the resources to create it.

Is it really so unthinkable that there could be a period of time where living standards decrease because we have less in the way of fossil fuel than we have become accustomed to?

I don't envision a Mad Max scenario, but I could see more wars, more oppressive leadership, and more famine resulting from fossil fuel shortages. The news anchor isn't going to say "Fighting in the Middle East continues due to peak oil," or "The famine in the Africa continues because of peak oil," or "You got fired from your job because of peak oil," and I'm not saying any of these things are a guarantee, but I don't think it's fear mongering to wonder if things may pan out this way.

Posted: **Sun Jan 01, 2012 12:45 pm**

BearBones wrote:
MachineGhost wrote: I think, like every other fear-mongering "resource scarcity" issue in the past, "Peak Oil" will turn out to be ballyhoo.
Every finite resource consumed will inevitably reach a peak of production, then decline. The question is only of timing. And peak oil is not an issue of "resource scarcity," in my mind, since only about half of the oil has been consumed at "peak," whenever that occurs. It is more about the tipping point where net energy (energy out minus energy invested) begins to decrease exponentially since energy production costs take off as the easy stuff is depleted (think tar sands vs gushing superficial oil well).

Peak oil is much more about "flow rates" than the remaining in-ground supply of oil.

Picture drinking out of a swimming pool from the top of a building using a straw that gets a little narrower each year. The amount of water remaining in the pool is not nearly as important as the narrowing of the straw. That's peak oil.

The global economy has never shown an ability to have robust growth against a backdrop of high energy prices and static oil production. A growth based economic system requires not just steady supplies of energy inputs, but expanding supplies of energy inputs. In other words, for business as usual we need a straw that gets a little wider each year, not a little narrower.

After 10 years of rising oil prices the world has seen only modest increases in overall oil production, while the replacements for oil that economists always promised would arrive if oil prices stayed high long enough have yet to show up.

I'm not saying that peak oil will be the end of the world, but it will likely lead to the end of certain treasured beliefs about the potential for exponential economic growth in perpetuity in an economic system that relies on finite supplies of the energy inputs necessary to generate the economic growth.

If someone comes up with a method for cold fusion or other magic unlimited supply of cheap energy I will certainly revise my views, but as of now we seem to have built a system based upon the assumption that a non-renewable input necessary for economic growth will somehow always be with us in cheap and abundant form when there is no rational basis for that belief.

Posted: **Sun Jan 01, 2012 3:10 pm**

Well stated, MT. I'm sure that you've posted on this elsewhere, but how do you see this playing out (of course, realizing that if any of us knew this with any degree of certainty, we would not be on this forum)?

Posted: **Mon Jan 02, 2012 11:30 am**

I didn't mean to sound snarky, but my perspective on the "new model" was that it seems more of an issue for developing/emerging nations than developed nations which already have the infrastructure and as a way of life. Recall, the so-called "Oil Crisis" of the 70's with gas rationing was not a supply issue, it was one of a Republican Nixon's depreciating dollar no longer backed by gold, and price and wage controls.

The forecast from the North Dakota Department of Mineral Resources is 750,000 bb/d by 2015. Production lags behind reserves, yet there is an estimated 24 billion barrels in the entire Bakken field alone. Multiply such numbers by a few for the other fields. The #1 problem is the lack of transportation, i.e. the lack of pipelines, not the lack of supply.

Only 5%? Well, getting off petroleum onto natural gas/electricity engines seems like it will do a lot more towards energy independence than producing new oil reserves.

MG

doodle wrote: MG,

The discovery of oil has shaped the configuration of our modern society more than I think many people realize. While I agree with you that the world is not going to go back to the stone age, I do think that dwindling oil supplies for an energy hungry world will create a period of instability and uncertainty as we envision and then transition to a new world model that is built on sustainable energy.

With regards to "peak oil"...it is something that the US has already experienced....not some theory. Currently we are producing about 5 million barrels of oil a day compared to nearly 10 million a day back in 1970...despite advances in technology, discoveries in Alaska, and deep water wells offshore.

Into this picture of scarcity, the oil shills throw out the Bakken as the solution to our problems. The EIA estimates that the Bakken will be producing about 350,000 barrels a day by around 2030 with very optimistic estimates at around 1 million barrels a day. We consume about 20 million barrels of oil a day already....so in a best case scenario this would account for about 5% of domestic consumption at current rates. This also doesn't factor in the EROI or environmental impacts of fracking which are yet to be determined.

Posted: **Mon Jan 02, 2012 11:35 am**

BearBones wrote: Well stated, MT. I'm sure that you've posted on this elsewhere, but how do you see this playing out (of course, realizing that if any of us knew this with any degree of certainty, we would not be on this forum)?

Hard to say.

Natural gas, unconventional liquids and coal will help.

The problem with any conservation effort applied to a finite resource is that the conservation efforts really only buy you a little extra time before supplies get tight, and the question always is "what then?" Some answer the "what then?" question with "we will figure something out, we always have." Others answer it by pointing out that through the history of the living world there have been countless instances of a life form encountering a one time endowment of a perfect food, fuel or habitat and seeing the population blossom in response to the endowment. When the endowment is exhausted, the population returns to pre-blossom levels in a typical reversion-to-the-mean process.

Humans are undoubtedly special life forms in many ways (the dinosaurs never went to the Moon). The question is whether we are special enough to escape the process I am describing above. One thing that we must be honest about when thinking about our species is that along with our impressive intelligence and adaptability to various environments, we also have a great capacity for self-delusion and an unconscious bias in our planning abilities toward periods of time that are equal to or less than a single human lifetime. As a result, ANY problem facing our species that would require more than one human lifetime to prepare for tends not to register with people as a serious threat.

Posted: **Mon Jan 02, 2012 11:36 am**

That's just too pessimistic a view in an age of decentralization and market democratization. The developed/emerging countries are already leapfrogging developed nations in alternative energy implementation, perhaps because they don't want to wind up in such the situation as you fear? China especially.

It's more likely in a SciFi film than reality. Political unrest and political institutions, imperfect as they may be, just will not stand for monopoly power on "black gold". Even Standard Oil was broken up almost 100 years ago.

MG

stone wrote: Whether we cope or not all seems to me to be down to whether we have gross wealth inequality. One way things could go would be to have oil equally unaffordable for everyone. That would be the case today if all 7bn people on Earth were equally well off. Then alternative energy would get developed promptly. The unemployed would all get employed building the infrastructure for existing alternative energy technologies. GoldmanSachs would not be able to outbid advanced alternative energy developers when recruiting staff etc etc. The other (more likely ) approach will be to ensure that as oil becomes more expensive, a smaller and smaller elite continues to fly around in private jets being self important with financial power being exerted to ensure that no one else can either afford oil or afford to employ people/work themselves to develop alternatives.

Posted: **Mon Jan 02, 2012 11:52 am**

MachineGhost wrote: That's just too pessimistic a view in an age of decentralization and market democratization. The developed/emerging countries are already leapfrogging developed nations in alternative energy implementation, perhaps because they don't want to wind up in such the situation as you fear? China especially.

In what way is China ahead of other industrialized countries in alternative energy development or implementation?

From an energy standpoint, China today reminds me of the U.S. in the 1950s, except coal is their preferred drug where oil was ours. From my perspective, China is taking a decidedly low-tech approach to its energy needs.

The question with alternative energy is normally not whether it works, but how much it depends on fossil fuel inputs to work in the first place and whether it can be scaled in any meaningful way to something large enough to displace a significant amount of fossil fuel provided energy.

What we seem to find with many alternative sources of energy is that they are, on the one hand, essentially "fossil fuels in drag" (corn ethanol comes to mind), OR they are not really new sources of energy at all, but rather ways of storing energy that comes from some other source (high-tech batteries come to mind here).

I am certainly open to having my mind changed about this issue, but I just haven't seen much in the way of alternatives to fossil fuels that would satisfy the peculiar energy needs that our current global economy has--i.e., we need a source of energy that is (i) cheap, (ii) versatile, (iii) easily transported, (iv) and the supply of which can be expanded as needed to accommodate economic growth without seeing its price increase dramatically. In the 20th century we were all spoiled because oil provided all of these features. As we move into the 21st century I think we are going to find that there won't be any more energy stories like oil was in the 20th century. In my view, it was simply a one-time allotment of cheap and abundant energy that we have now literally burned through. What we have left is still plenty of energy, it's just that the supplies we have left can't be expanded at will, and are unlikely to ever be as cheap as they were for most of the 20th century.

Posted: **Mon Jan 02, 2012 12:28 pm**

http://en.wikipedia.org/wiki/Renewable_ ... c_of_China

The recently announced space ventures is disturbing too.

MG

MediumTex wrote:
MachineGhost wrote: That's just too pessimistic a view in an age of decentralization and market democratization. The developed/emerging countries are already leapfrogging developed nations in alternative energy implementation, perhaps because they don't want to wind up in such the situation as you fear? China especially.
In what way is China ahead of other industrialized countries in alternative energy development or implementation?

From an energy standpoint, China today reminds me of the U.S. in the 1950s, except coal is their preferred drug where oil was ours. From my perspective, China is taking a decidedly low-tech approach to its energy needs.

The question with alternative energy is normally not whether it works, but how much it depends on fossil fuel inputs to work in the first place and whether it can be scaled in any meaningful way to something large enough to displace a significant amount of fossil fuel provided energy.

What we seem to find with many alternative sources of energy is that they are, on the one hand, essentially "fossil fuels in drag" (corn ethanol comes to mind), OR they are not really new sources of energy at all, but rather ways of storing energy that comes from some other source (high-tech batteries come to mind here).

I am certainly open to having my mind changed about this issue, but I just haven't seen much in the way of alternatives to fossil fuels that would satisfy the peculiar energy needs that our current global economy has--i.e., we need a source of energy that is (i) cheap, (ii) versatile, (iii) easily transported, (iv) and the supply of which can be expanded as needed to accommodate economic growth without seeing its price increase dramatically. In the 20th century we were all spoiled because oil provided all of these features. As we move into the 21st century I think we are going to find that there won't be any more energy stories like oil was in the 20th century. In my view, it was simply a one-time allotment of cheap and abundant energy that we have now literally burned through. What we have left is still plenty of energy, it's just that the supplies we have left can't be expanded at will, and are unlikely to ever be as cheap as they were for most of the 20th century.

Posted: **Mon Jan 02, 2012 4:27 pm**

MachineGhost wrote: The recently announced space venture is disturbing too.

Really?

Aren't the Chinese just proposing to do what the U.S. did several decades ago?

That doesn't seem all that disturbing.

If I was a part of the Chinese communist thugocracy I would be be more concerned with how several hundred million Chinese peasants were going to react to a government that would rather engage in vanity projects like space exploration rather than making sure everyone had enough to eat.

Gyroscopic Investing

The Bakken Oil Rush

The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush

Re: The Bakken Oil Rush