Probably the biggest, nastiest monster under my bed for some time has been the possibility of a massive methane release from the Arctic region kicking global warming into warp speed. To people who don’t follow this stuff as obsessively as I do, this probably sounds like I’ve suddenly enlisted in the tinfoil hat brigade. Let me explain, as it’s sadly nowhere near that nutty a concept.
First, consider that methane is a much more powerful greenhouse gas than CO2. It doesn’t hang around in the atmosphere nearly as long as does CO2, but the net effect, once you take that timing into account, is usually quoted as roughly 20 times more greenhouse forcing than an equivalent amount of CO2. That’s a scary-big number. (To be more precise, the effect is estimated to be 62 times higher over the first 20 years, and “only” 21 times higher over a century.)
Second, there are two main stores of methane: Methane hydrates (a.k.a. methane ice or methane clathrates) in oceans and methane trapped in permafrost in places like Siberia.
How much of this stuff are talking about? A lot:
Recent estimates constrained by direct sampling suggest the global inventory lies between 1×10**15 and 5×10**15 m³ (1 quadrillion to 5 quadrillion). This estimate, corresponding to 500-2500 gigatonnes carbon (Gt C), is smaller than the 5000 Gt C estimated for all other fossil fuel reserves but substantially larger than the ~230 Gt C estimated for other natural gas sources. The permafrost reservoir has been estimated at about 400 Gt C in the Arctic, but no estimates have been made of possible Antarctic reservoirs. These are large amounts. For comparison the total carbon in the atmosphere is around 700 gigatons.
So , for the oceans and the Arctic permafrost combined we have 900 to 2,900 billion metric tons of carbon, roughly 1.3 to 4 times as much carbon as is already in the atmosphere.
Third, is there any real threat that this stuff will wind up in the atmosphere? Actually, there is, as relatively small amounts have been measured bubbling out of Siberia thaw lakes for at least a couple of years. That same article states that Siberian methane releases are about 3.8 Tg/year, compared to IPCC’s estimates of 600 Tg/year for all methane emissions, so from just the permafrost the current methane releases seem to be pretty small compared to other sources, such as the one US government reports delicately refer to as “enteric fermentation” in livestock, a.k.a. cow farts.
But there’s more evidence than that:
Higher atmospheric levels of the greenhouse gas methane noted last year are probably related to emissions from wetlands, especially around the Arctic.
…
Indications that methane levels might be rising after almost a decade of stability came last month, when the US National Oceanic and Atmospheric Administration (Noaa) released a preliminary analysis of readings taken at monitoring stations worldwide.
Noaa suggested that 2007 had seen a global rise of about 0.5%.
…
Ed Dlugokencky, the scientist at Noaa’s Earth System Research Laboratory (ESRL) who collates and analyses data from atmospheric monitoring stations, agrees that the 2007 rise has a biological cause.
“We’re pretty sure it’s not biomass burning; and I think 2007 is probably down to wetland emissions,” he said.
“In boreal regions it was warmer and wetter than usual, and microbes there produce methane faster at higher temperatures.”
Dr Dlugokencky also suggested that the drastic reduction in summer sea ice around the Arctic between 2006 and 2007 could have increased release of methane from seawater into the atmosphere.
A further possibility is that the gas is being released in increasing amounts from permafrost as temperatures rise.
Researchers will be keeping a close eye on this year’s data which will indicate whether 2007 was just a blip or the beginning of a sustained rise.
Methane concentrations had been more or less stable since about 1999 following years of rapid increases, with industrial reform in the former Soviet bloc, changes to rice farming methods and the capture of methane from landfill sites all contributing to the levelling off.
In the recent past, concentrations have risen during El Nino events, whereas the world is currently amid the opposite climatic pattern, La Nina.
…
A sustained release from Arctic regions or tropical wetlands could drive a feedback mechanism, whereby higher temperatures liberate more of the greenhouse gas which in turn forces temperatures still higher.
A particularly pertinent question is whether methane is being released from hydrates on the ocean floor.
These solids are formed from water and methane under high pressure, and may begin to give off methane as water temperatures rise.
See that link for a graph of methane emissions as measure by NOAA.
Finally, we have the issue of just how bad a big methane emission could be, in terms of global warming. As it turns out, we may have a truly hair-raising historical precedent:
Melting of methane ice unleashed runaway global warming some 635 million years ago, according to a study released Wednesday that has implications for today’s climate-change crisis.
Release of the potent greenhouse-gas, at first in small amounts and then in massive volumes, brought a sudden end to the planet’s longest Ice Age, its authors believe.
During the “Snowball Earth” era, Earth froze over completely, with glaciers that crept down into the tropics and possibly even reached the equator.
The chill was self-sustaining, because the ice formed a brilliant white shell that reflected the Sun’s rays, preventing the surface from warming.
After a frozen slumber lasting 155 million years, Earth warmed dramatically.
How this happened has been fiercely disputed, although all agree that the event changed the planet’s climate system and ocean chemistry forever.
Publishing in the weekly British journal Nature, scientists in the United States and Australia point the finger at methane clathrates — methane-rich ice that forms under ice sheets at specific temperatures and pressures.
The researchers believe that the ice sheets on Snowball Earth became unstable, which released pressure on the clathrates.
They began to evaporate, releasing the methane, which helped to warm the planet slightly. This thawed more clathrates and fuelled the warming and so on, creating a vicious circle or “positive feedback” in scientific parlance.
…
Billions of tonnes of methane are locked up in these reservoirs, and the big worry is that it could take a relative small rise in temperature to start unleashing the gas, which would then trigger an unstoppable warming cycle.
“One way to look at the present human influence on global warming is that we are conducting a global-scale experiment with Earth’s climate system,” said Kennedy.
“We are witnessing an unprecedented rate of warming, with little or no knowledge of what instabilities lurk in the climate system and how they can influence life on Earth.”
If the end of Snowball Earth is a guide, positive feedbacks, “once initiated, change the climate to a wholly different state,” he observed.
If the mechanism for clathrates’ feedback is now clearer, the scientists have still to explain how much forcing was needed for the vicious circle to set in motion — and whether we are approaching any similar threshold today with the CO2 from fossil fuels.
All this means… what, exactly?
Let me be as clear as possible about this: I’m not saying that we’re definitely on track for a rendezvous with a methane burp (or clathrate gun, as some call it) scenario. As the last bit of text quoted above points out, we don’t know where the tipping point is, even if we assume that these latest findings hold up to scientific scrutiny. And to be completely objective, they might not, although that’s not how I would bet my Internet connection right now.
For me, there are two factors that elevate the methane apocalypse from “dumb thing I read on the Internet and can now ignore” to “something I really hope we’re spending a lot of money researching, right now“. The first is the rate at which climate change is happening, not least of all in the Arctic ice situation, as shown on the home page of the NSIDC (National Snow and Ice Data Center). I’ve pointed out numerous times on this site that the worldwide climate is changing much quicker than we expected, which means that despite the best efforts of a lot of extremely smart and dedicated people we still don’t understand what’s going on as well as we’d prefer. Will the changes we’re seeing level off or even decline over the next few years? Or will feedback effects, from albedo flip (reflective ice being replaced by less reflective water or ground) to methane releases accelerate change, possibly to the point where no reduction in our CO2 emissions will save the day?
The other factor is the similarity of the scenario outlined in the last article I quoted from above to our current situation. The critical difference is that in 2008 we’re changing the CO2 level in the atmosphere at a lightning fast pace, by geologic standards, and with virtually no hope of reducing that buildup this century. We could very well be running, at full-speed and blindfolded, into the mother of all tipping points and triggering catastrophic effects in a few decades instead of hundreds or thousands of years.
Maybe the situation isn’t that dire. Maybe this is all a lot of worry over nothing, and there are negative feedbacks we either haven’t discovered or grossly underestimate that will buy us considerable time to reduce our CO2 emissions and then the level of CO2 in the atmosphere. But right now, it feels more like we’re playing Russian roulette with the biosphere instead of being prudent and applying the precautionary principle.
See also Joe Romm’s take on this:
I know how hard it is for a newcomer to get his or her mind wrapped around all this energy and environmental stuff. The sheer volume of information and sources (some with a very pointed, albeit unstated agenda), plus the technical nature of much of the information add up to quite a challenge.
That’s why I’ve decided to try something a little different, beginning with this post. Below I’ll give you my personal list of “must read” authors, with some explanation of why each person is on the list. My plan is to repost this list from time to time as I add or delete people from my list, assuming I get sufficient feedback from readers, which I hope you’ll either leave as a comment on this post or e-mail to me directly. I read this stuff compulsively, and I know I can’t keep up with all the authors I should be following, so you can help me in this area, too.
I suggest that for some of these authors you set a Google alert to keep track of their work, which appears in various publications as individual articles, not regular columns.
So, without further ado, the alphabetical list of authors (with a pair of bonus sites thrown in for good measure):
Kjell Aleklett
Why: Aleklett is currently president of ASPO (Association for the Study of Peak Oil and Gas), and has been writing about oil and natural gas issues for years. He’s also a professor in physics at the Department of Physics and Astronomy, Global Energy Systems Group (former Uppsala Hydrocarbon Depletion Study Group) at Uppsala University. You can see his bio and contact information here.
Where: His blog, Aleklett’s Energy Mix, plus occasional posts on the ASPO site.
Dave Cohen
Why: He has a track record of writing exceptionally well about our oil situation.
Where: Cohen posts an article every Wednesday at the ASPO-USA site.
Jim Hansen
Why: From his Wikipedia entry:
James E. Hansen (born March 29, 1941 in Denison, Iowa) heads the NASA Goddard Institute for Space Studies in New York City, a part of the Goddard Space Flight Center in Greenbelt, Maryland, Earth Sciences Division. He is currently an adjunct professor in the Department of Earth and Environmental Sciences at Columbia University, and also serves as Al Gore’s science advisor. Hansen is best known for his research in the field of climatology and his testimony on climate change to congressional committees in the 1980s that helped raise broad awareness of the global warming issue.
Hansen is also the most conspicuous example of a scientist who is not afraid to speak plainly about where the data says we’re headed. This causes many people, especially global warming deniers, who don’t like his conclusions to label him as “alarmist”.
Where: His site, plus numerous other publications.
Jim Kingsdale
Why: Kingsdale is a very pragmatic, knowledgeable analyst writing about energy topics, mostly oil. He has a track record of cutting straight through the BS and finding, and then analyzing, the core issues.
Where: His site, Energy Investment Strategies
Michael T. Klare
Why: From his Wikipedia entry:
Michael T. Klare is a Five Colleges professor of Peace and World Security Studies, whose department is located at Hampshire College, defense correspondent of The Nation magazine, and author of Resource Wars and Blood and Oil: The Dangers and Consequences of America’s Growing Petroleum Dependency (Metropolitan). Klare also teaches at Amherst College, Smith College, Mount Holyoke College, and the University of Massachusetts, Amherst.
Klare also serves on the boards of directors of Human Rights Watch, and the Arms Control Association. He is a regular contributor to many publications including The Nation, Tom’s Dispatch, Mother Jones, and is a frequent columnist for Foreign Policy In Focus.
I’ve read the two books mentioned above, and while Klare very often says uncomfortable things, I can’t argue with his conclusions.
Where: The Nation (link searches for his name on the magazine’s site) plus various other sites and publications on an irregular basis.
Paul Krugman
Why: An economist who gives economists a good name, even in the peak oil crowd, which is saying a lot. Sadly, he doesn’t write exclusively on energy and environmental issues.
Where: His NY Times columns
Bill McKibben
Why: McKibben is one of the most passionate, informed, and dedicated writers covering environmental issues today. He’s also working with 350.org, a project to raise awareness of the need to reduce atmospheric CO2 to 350 parts per million. (It’s not clear from the site if he’s simply working with this project or if it’s “his” operation.)
Where: McKibben frequently writes for various high-profile publications such as The New York Times, The Atlantic Monthly, Harper’s, Orion Magazine, Mother Jones, The New York Review of Books, Granta, The National Geographic, Rolling Stone, and Outside. He is also a board member and contributor to Grist Magazine.
Joe Romm
Why: Romm was Acting Assistant Secretary of the U.S. Department of Energy in Bill Clinton’s administration, and he’s a tireless advocate for taking action on climate issues. He strongly favors using smarter public policy to get the most out of current technologies and institutions. He’s written several books, most notably The Hype About Hydrogen.
Where: Climate Progress
Matt Simmons
Why: Probably the most frequently interviewed and quoted guy on oil issues, at least in the mainstream financial press. He runs Simmons & Company International, an investment banking in the energy sector, and is the author of Twilight in the Desert, one of the “must read” oil books.
Where: Simmons is all over the mediasphere, but you can find his presentations here.
Bonus entry: EnergyCollective
Why: A blog-of-blogs site featuring writers (including some guy with the probably fictitious name “Grinzo”) covering energy and environmental issues.
Where: The Energy Collective
Bonus entry: RealClimate.org
Why: RC is “the” site for climate science. It’s run by real climate scientists, not a bunch of bloggers sitting around in their Star Trek pj’s. It also features an exceptionally high level of commentary from the readers.
Where: RealClimate.org
For a long time, the world oil market was pretty simple: World demand was lashed to US demand–part of that whole “the US uses 25% of the world’s oil” thing we hear all the time, and and Saudi Arabia had both the spare production capacity and the willingness to be the “swing producer”, the exporter that throttled its production up or down to keep the market relatively calm. But paradigm shift happens, and as I type this we’re just beginning to test drive the new energy world.
What makes this new world so new is far more than current oil prices, but a combination of perceptions and economic realities that could have profound effects on those prices and everyone who pays or is dependent on them, which is, well, almost everyone on the planet.
As I see it, the defining characteristics of the new energy world order are:
OPEC’s perception
You can find all the arguments you could possibly want online about whether OPEC (and in particular, Saudi Arabia) has any appreciable spare production capacity. Put another way, we don’t really know if their newfound resistance to calls for more oil, including visits from George Bush, hat in hand, is a reflection of their ability or their willingness to pump more oil. My blatant guess, which is just as blatant as anyone else’s regarding the enigma lasagna that is OPEC, is that they do have some spare capacity, perhaps two or three million barrels per day, but that they’ve had a significant shift in their perception of the market, which is making restraint far easier than it has been in the past.
What could suddenly influence OPEC in this way? Two things:
First, and of lesser importance, is the fact that the world’s largest oil importer (I’m looking at you, America) has not exactly been the most stable or friendly of neighbors for years, at least since about March 2003 when that whole “we have to blow the hell out of Iraq because they have WMD’s and unmanned drones that can reach the US” thing erupted onto the world stage, fully formed, from the fertile little minds of certain people. Honestly, if you had a dwindling resource that a vastly larger and more powerful country was painfully reliant upon, and that country was acting the way the US has, how much incentive would you feel to keep their oil bill and your revenues low by depleting that resource quicker than necessary?
Second, even OPEC doesn’t have an infinite amount of oil, and they have very likely reached a critical stage in the history of the oil market: They can restrict supply and let prices float to previously unimagined heights without fear that the US and other importers will wean themselves from the devil’s tears, as oil is called in parts of Asia. OPEC knows it will take the US years to transform its economy to one that uses vastly less oil, and once we are closer to the world peak of oil production than the US’s transformation time, there’s no point in being quite so compliant. Suddenly, OPEC has immense incentives to trim output and support much higher prices. They make far more money, they extend the production lifetime of their oil fields (which maximizes their power and earnings in the future when oil becomes truly scarce), and they can even tell themselves that they’re doing the importing countries a favor–higher prices pre-peak mean the transition away from oil starts sooner and reduces the risk of a major economic collapse (or yet another oil war), which would be bad for the importers as well as the exporters’ business. They get to enhance their position now and in the future, and they can tell themselves that they’re doing the whole world a favor. What could be better?
New customers
Looking at the BP Statistical Review of World Energy, we see that from 1996 to 2006 oil demand in China grew by 101% (3.702 million barrels/day to 7.445), India’s grew by 51% (1.700 to 2.575), and the entire Middle East’s grew by 35% (4.370 to 5.923). By comparison, oil consumption for all of Europe and Eurasia grew by 5% (19.555 to 20.482), and the US’s grew by 12% (18.309 to 20.589).
When domestic oil demand rises in an exporting country (often due to very high subsidies that make gasoline extremely cheap), that means less oil on the open market for importers to buy. A far bigger impact is emerging from China and India, however, for reasons that involves a little economics theory. (Don’t worry, it won’t hurt.)
China has a population of roughly 1.3 billion people, while India’s is about 1.1 billion. Large portions of those immense populations are just entering what most people would call a consumer or middle class society. As a result, they have more money than ever before, and they’re spending it on cell phones, more and better food, and, most pertinent for our purposes, their first cars. None of this is news to most people who follow energy and environmental issues, but there’s an economic subtlety that is almost never mentioned: Consumer surplus.
I’ll spare you the supply-and-demand graph, but basically consumer surplus says that if the overall market is willing to buy X units of some product at price Y, then a lot of people are getting bargains–they would be willing to buy as much (or very nearly so) as they do now at a price higher than Y, but they don’t have to because the market has settled on a price of only Y. These are the people who derive more utility/dollar from buying their share of those X units than other consumers do, so they’re willing to pay more. (Think about the classic “early adopters” who line up to buy the latest iPhone or PlayStation. They derive a lot of utility from not just using the item, but from being known as one of the first people to own it. Not only do they pay the day one price, before it has a chance to decline, but they also incur the cost of standing in line outside the Apple’s store all night.) These are the people buying their first cars in China and India. They will not be easily turned away from driving, and certainly not from car ownership, by a rise in gasoline prices.
Our brave new oil market
So, where does that leave us? The old paradigm would tell us that when the US goes into a recession, as it is in all but official pronouncement right now, and when gasoline prices contribute to a reduction in US driving, as it has already has, then world demand for oil declines, the price drops, and if the situation becomes extreme enough OPEC reduces output a bit.
This time we have an entirely different scenario unfolding. US demand drops, and those early adopters in China and India, plus the growing domestic consumption in some oil exporters and OPEC’s eagerness to keep the market tight as a drumhead, greatly reduce the odds of a major oil price correction in the short run. The slack created by reduced US demand will be taken up by other consumers around the world, to the extent that it survives changes in the supply of oil. In other words, the US is now at the economic mercy of other countries’ oil consumption, just as they have been influenced by ours, including the knock-on effects on our foreign policy, for decades.
How confident can we be that this new energy model accurately describes our world? Opinions are all over the map, no pun intended. You can find pundits and analysts claiming that the decline in US demand will have anywhere from a major to precisely no effect on oil prices, beyond localized blips like the drop yesterday and today. The rules of the game are changing before our eyes, and there’s more fundamental uncertainty in the world oil situation than at almost any time since World War II.
I’m sure of one thing, though: In the next year or so we’ll live through one hell of a market experiment and get a lot of answers, some of which might not be good news.
One might assume that the Intertubes are hummin’ over the news that the IEA is doing their own bottom-up analysis of the world’s oil fields, with the likely result being a dramatically lowered projection of future oil supply. And one would be right.
Here’s a sampling of what’s being said, with some brief commentary from your host:
Who knew? What did they Know?:
Who knew? What did they know? And when did they know it? No, I am not talking about the Soviet style show trial in Washington with oil company executives being grilled. What I am talking about is who knew about the upcoming adjustments to the International Energy Agency’s long term supply forecast.
It’s obvious, based on the market’s quick dramatic move from backwardation to contango over the last two weeks, that someone had a very good idea that the IEA was about to make a major announcement. This week I have been asking why the market, in just a few short weeks, had this sudden epiphany that the world was running out of oil. I have been asking why oil in the deferred contracts had an almost unprecedented gain of almost $8 a barrel on the front month contracts in just a few weeks. Now I think we all know why. Obviously some one knew about what is being reported on the front page of today’s Wall Street Journal.
IEA worried about oil supplies, prepares forecast:
A leading global energy monitor fears there may not be enough oil to slake the world’s thirst — and is preparing a landmark forecast that could reverberate through the global economy even as major companies announce fuel-related cutbacks.
The International Energy Agency is studying depletion rates at about 400 oil fields in a first-of-its-kind study of world oil supply, chief economist Fatih Birol said.
“We are entering a new world energy order, ” Birol told The Associated Press.
Market analysts call the Paris-based IEA the world’s most reliable independent source of oil information and welcomed its decision to undertake a deep study of oil supplies.
But the IEA’s new forecasts are likely to further upset markets. Oil prices hit an all-time high Thursday above $135 a barrel before falling back.
Less oil would mean even higher prices for everything from gasoline to food. Already, airlines squeezed by jet fuel costs are bleeding profits and predicting cutbacks and industry upheaval. Ford Motor Co. said Thursday it was cutting production of gas-guzzling sport utility vehicles and forecast more rough times ahead.
Economic Toll Mounts From High Oil Prices:
Some investors reacted to a report on Thursday in The Wall Street Journal that the International Energy Agency, an Paris-based policy advisory group for industrialized countries, was concerned about a reduction in the long-term world supply of crude oil.
But the agency’s chief economist said in an interview that the study’s results were still inconclusive. “We are going to revise our oil supply prospects,” said Fatih Birol, the economist. “We don’t know the results yet.”
And several oil analysts dismissed the importance of the current anxieties affecting the market.
“Concerns about future supply — that’s nothing new, it’s been there for four years,” said Antoine Halff, an analyst at Newedge.
Some experts expressed frustration that investors were only focusing on alarmist reports about declining supplies in a few areas and failed to consider that higher prices would eventually tamper demand and attract new production from places like Brazil.
IEA says oil output near capacity:
The International Energy Agency says operating oil fields around the globe are pumping as much black gold as they can. Yet, there are numerous fields untapped. John Dimsdale reports on why oil companies haven’t drilled into them.
[follow link for audio story]
Oil Rises Above $135 as OPEC Says It’s Powerless to Stop Rally:
The Wall Street Journal reported earlier that the International Energy Agency will lower its 2030 supply projection to 100 million barrels a day from 116 million. The Paris-based IEA was founded in 1974 in response to the Arab oil embargo.
“We are trying to get a better understanding of depletion rates and expectations of productivity,” Bill Ramsey, the agency’s deputy executive director, said in a telephone interview. “There is growing awareness that raising world output is a problem,” and it is “too early” to give any estimates, he said.
Chilling warning on oil supply:
The world’s leading energy authority warned yesterday that global oil supplies may fall well short of booming demand within the next 20 years.
The International Energy Agency’s chilling assessment has been revealed as oil prices burst through $US135 a barrel for the first time, after a sharp drop in US inventories.
…
The Paris-based agency’s gloomy outlook comes just days after Goldman Sachs JBWere analysts predicted that oil prices would surpass $US140 this year and could average $US200 in 2009.
And it is likely to be seized on by investors, who have already pushed oil prices to double the levels they were a year ago.
Oil futures end lower to mark first loss in a week:
The Wall Street Journal reported Thursday that the IEA is attempting to assess the condition of the world’s top 400 oil fields. Its findings won’t be released until November, but it is clear that future crude supplies could be far tighter than previously thought, the report said.
The IEA has predicted previously that supplies of crude and other liquid fuels will keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently, according to the report.
The agency now is concerned that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades, the Journal reported.
My two related posts were about the contango phenomenon (The oil market falls into line, perfectly) and the IEA story (Deciphering the oil market).
I’m still convinced that the IEA report will be a major, perhaps unprecedented, turning point in our mass recognition of what “you can’t use a non-renewable resource forever” means in the context of something as vital to modern economies as oil. You can argue endlessly and truthfully that we should have figured out decades ago that peak oil was bearing down on us like a runaway train, and it’s our own fault we’re in this mess because so many of us ignored the facts and the basic logic of the situation. In my opinion that’s as undeniable as peak oil is unsettling.
Looking forward, I expect to see the oil market and closely linked industries, most notably airlines and cars, continue their (and our) roller coaster ride in response to news out of OPEC and this already famous IEA report, even without the added “stimulus” of oil production shutdowns from above ground events. Even worse, I expect to see US politicians committing serial acts of idiocy as they pander to voters feeling genuine pain from gasoline prices and overall inflation, even as the deniers work overtime to try to convince us that “there’s plenty of oil” and, above all, that “the oil companies are just screwing us again”.
As I’ve observed here from time to time, our energy future is going to be a lot of things, but “dull” isn’t on the list.
As I explained yesterday in The oil market falls into line, perfectly, the oil futures market is doing some decidedly weird things, at least measured by historical standards. Beyond the rapid run up in price–including a $4+ jump just yesterday–there’s this issue of the market being in a state of “continuous contango”, meaning that as you go further into the future the price of oil in various contracts rises.
The conventional wisdom is that contango can’t last with a non-perishable commodity like oil, since doing so would indicate that traders couldn’t simply delay selling it until the price rose, which would push up current prices (less is being consumed now) and bring them down in the future (when that supply becomes available). Checking the NYMEX oil prices just now, I see that while the market is generally still clearly in contango out to the furthest contract, dated December 2016, the pattern is no longer perfect, and a few very minor dips have shown up in the prices.
So, what’s going on here?
After having a little time to do some more reading and just sit and think about it, I’m convinced that we’re seeing a confluence of two factors, one “news” (at least to commodity traders who were behind the curve on peak oil), one not.
Factor 1: Surprise! Peak oil isn’t a myth!
The news is that peak oil is looking a lot more like a mainstream concept and an imminent phenomenon. No, the oil traders haven’t suddenly started flocking to this site or others talking about peak oil, but they very likely are aware of the stunning news that will be published by the IEA in November, according to The Wall Street Journal:
The world’s premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.
The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world’s top 400 oil fields. Its findings won’t be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.
…
For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.
The decision to rigorously survey supply — instead of just demand, as in the past — reflects an increasing fear within the agency and elsewhere that oil-producing regions aren’t on track to meet future needs.
“The oil investments required may be much, much higher than what people assume,” said Fatih Birol, the IEA’s chief economist and the leader of the study, in an interview with The Wall Street Journal. “This is a dangerous situation.”
…
But the direction of the IEA’s work echoes the gathering supply-side gloom articulated by some Big Oil executives in recent months. A growing number of people in the industry are endorsing a version of the “peak-oil” theory: that oil production will plateau in coming years, as suppliers fail to replace depleted fields with enough fresh ones to boost overall output. All of that has prompted numerous upward revisions to long-term oil-price forecasts on Wall Street.
…
The IEA’s study marks a big change in the agency’s efforts to peer into the future. In the past, the IEA focused mainly on assessing future demand, and then looked at how much non-OPEC countries were likely to produce to meet that demand. Any gap, it was assumed, would then be met by big OPEC producers such as Saudi Arabia, Iran or Kuwait.
But the IEA’s pessimism over future supplies has been building for some time. Last summer, the agency warned that OPEC’s spare capacity could shrink “to minimal levels by 2012.” In November, it said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day, unless there was a sharp drop in expected demand. The current IEA work aims to tally the range of investments and projects under way to boost production from the fields in question to get a clearer sense of what to expect in production flows.
Think about this for a moment and you’ll probably agree that this is an enormous conceptual leap, the economic equivalent of Walter and Luis Alvarez figuring out that the dinosaurs were wiped out by a big rock falling out of the sky. It’s a true paradigm shift, and it raises some very uncomfortable questions.
Factor 2: No place for our stuff
As for the other factor, let me being with a snippet from one of Jeff Vail’s posts on The Oil Drum:
Contango could exist if a few circumstances were met: present rate of oil production would need to be effectively fixed, there would need to be a consensus that future rate of production will be lower and that demand will remain highly inelastic, and there must be some impediment to storing today’s oil to sell in the future. If all three of these came to pass, then the oil markets could be in significant contango and arbitrage would not be able to remedy the situation. Of course, it seems unlikely that these things (specifically the inability to store oil) will come to pass unless through some kind of political or regulatory move, but it is possible.
My contention is that there simply is no way to store enough oil to bring down future prices, if you assume that the IEA reassessment is accurate, which means that from the perspective of today’s traders, all of Jeff’s conditions are met. We’re on a production plateau; there is now a consensus that the future rate of production will be lower, at least relative to demand, which is what really matters; and we can’t store the oil.
Why can’t we store oil? We do it all the time, right? The problem is that we can’t store enough of it to make a difference over a period of years.
Assume, for example, that to loosen up the markets and drop the price substantially you have to come up with another 1 million barrels of oil per day. (We’re currently consuming about 85 million barrels/day, worldwide.) That means that over the 8.5-year period covered by the NYMEX contracts, you would need to store just over 3.1 billion barrels of oil, or all the world’s oil production for 36 consecutive days. That’s a lot of oil.
How much do we store now? The IEA’s figures for the OECD countries[1] show that in February 2008 their combined stockpiles of crude oil, NGL, and refinery feedstocks were 2.3 billion barrels. (See Table 9.2 of this spreadsheet (1MB XLS file).)
So, where would we put 1.35 times as much unrefined oil as the entire 30-nation OECD currently stores? We can’t put that 3.1 billion barrels on supertankers, as that would take a fleet of about 1,000 ships, assuming they’re all the largest ones currently in existence, with a capacity of 3.1 million barrels each, of which we currently have four.
The entire US SPR (strategic petroleum reserve), which is the largest such reserve in the world and stores oil in underground salt domes, is “only” 700 million barrels, just 23% of our target 3.1 billion barrels.
You can come up with your own scenarios about how long it would take to build up that large an oil stockpile, and how insane the market would go if we tried.
Conclusion
I’m convinced that we’re seeing an awakening of the broader market to the breadth and depth of our worldwide oil mess. A crucial segment of the economy, the money people, are finally figuring out that those of us who have been obsessed with this topic for years weren’t all crazy. My guess is that there was no single event that triggered their change of mind, but a rising tide of information and opinion gently lifting their conceptual boat: We’ve had numerous statements in recent months from oil companies about the difficulty of meeting future demand, plus a growing list of ever more dire predictions from the investment and securities firms. But the news that the IEA is doing their own megafields project, ala Chirs Skrebowski’s (which is the most reliable methodology, in my opinion, and concludes we’re headed for a 2011/2012 peak), and that it will show a dramatically lower peak probably contributed the last ripple needed. (And I have to wonder about the IEA leaking this news six months in advance of the report’s official release. That’s as transparent an attempt to soften the blow of bad news as one could imagine. Even with continual leaks, I expect to see a knee jerk reaction when the final report is released.)
The market likely will oscillate between contango and backwardation, with few eyebrow-raising events like the continuous contango we saw two days ago. But barring any unforeseen surprise, like a dramatic drop in worldwide oil demand or someone discovering how to turn sea water into regular unleaded at $1/gallon, we’ll see continued “high” and generally rising prices, even without any other factors, like a new war or terrorist attack, launching the market into low-Earth orbit.
In short, during the last 48 hours the energy world dramatically changed shape, with vast implications for almost everything we do in our daily lives.
[1] The OECD countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States
This is one of the weirdest things I’ve ever seen in energy data. I just checked the NYMEX oil prices web page, and what do I see but steadily rising prices from July 2008 ($128.98) all the way to December 2016 ($138.38) for the most recent settlement prices. (The NYMEX contracts listed on that page are monthly through the end of 2013, and then include just June and December for 2014 through 2016.)
Why is it weird, at least in my experience? Two reasons:
First, that $138.38 is the highest price I remember seeing on the NYMEX.
Second, the monotonically non-decreasing nature of the contract values–they rise in every new contract except for one pair (December 2009/January 2010), where they’re the same–is something I’m sure I’ve never seen before.
In fact, the general phenomenon of futures contracts being priced higher the further you go into the future (”contango”, in market speak) is an issue of some debate when you’re talking about oil. See Has Peak Oil–As a Meme–”Tipped”? (Out of Futures Backwardation and into Contango) for a good explanation of why this is thought to be at most a fleeting situation. The short version: The incentive to hold on to a commodity and sell it later at the higher price will always pull the futures contracts into “backwardation” (prices decline as you go further into the future). [insert Back to the Future joke here]
What to make of this?
I can’t stress this enough: Do not, do not, DO! NOT! consider the NYMEX numbers to be some definitive, oracular statement on Where Oil Is Going. Those prices are the collective judgment of many people with vastly different energy market knowledge, futures trading experience, and agendas, even beyond the desire to make money. As I so often point out, in one form or another, what do you think the NYMEX contract for this month “predicted” in the dim and distant past of, say, 2005? Do you think it was even close to the current $129/barrel price? Hint: Oil settled on May 20, 2005 at $46.80. My hunch is that the oil prices on that page will ultimately prove to be conspicuously low for a good portion of those contracts.
The Lasting Contango in NYMEX likely won’t be. Lasting, that is, at least not for much longer. I wouldn’t be surprised to see it disappear in a matter of days, if not hours.
While we’re on the topic, let me take a half step in the general direction of Blatant Speculation and ask: What would it tell us if the contango in the oil futures market persisted? Would it mean that perhaps we’ve had a real, honest-to-Pete paradigm shift right before our eyes, a rewriting of the rules? Could it mean that the endless blog postings and articles and books about peak oil have finally filtered into the caffeine addled minds of traders and they’ve concluded that not only is peak oil real and imminent, but that even if oil companies wanted to withhold oil from the market now to sell in the future, they can’t do so with a large enough volume to rebalance current and future prices and pull the market toward backwardation? (Again, see the article linked above for the trader techie details.)
I won’t pretend that I have any answers to those questions, nor am I willing to make a blatant guess as to whether the current state of contango is anything more than just a short-lived quirk. But you can bet your Internet connection that I’ll be checking the NYMEX numbers a lot more closely than normal for the next few days.
Every once in a while I read a news story that makes me wonder it gets written and published/posted without someone saying, “Wait a second… can this be right? And if it is, shouldn’t we explain how it could possible be true???”
See, I’m old school. I still believe in things like journalistic ethics and writers not just covering the facts accurately, but anticipating which questions a story will raise and then answering them. Any news story that leaves the reader with one or more huge unanswered questions is, in my quaint view of such things, a Bad Story.
Case in point: U.S. Gasoline May Hit $4.20/Gallon by Memorial Day, Study Says, which is dated today (May 20) and begins with the following two paragraphs:
U.S. retail gasoline prices may reach $4.20 a gallon around the Memorial Day holiday as demand rises amid limited supplies, a study said.
Demand typically rises during the summer driving season, which begins with the Memorial Day holiday, on May 26 this year, Kenneth Medlock III, a fellow at Rice University’s Baker Institute for Public Policy, said in a statement today on the study.
Since the average retail price of unleaded gasoline in the US is $3.80/gallon (as the article itself points out), this article seems to be saying that we will see another rise of 40 cents/gallon in just a few days.
Since no one seemed to bother asking this about the article, let me don my Journalism Man tights and cape and leap into action and ask, “Can this be right?”
Well, as a crude measurement, let us look at the historical record. If you go the EIA page with gasoline price data, you can download a spreadsheet with all the numbers from August 1990 until yesterday. (See link in the upper-left corner of that page.)
Doing minimal programming with the data in column E, “U.S. Regular All Formulations Retail Gasoline Prices (Cents per Gallon)”, shows that the week-to-week changes are, as one might expect, normally pretty small. In fact, only once have we seen a movement up or down of more than 40 cents/gallon in a week, and that was 45.9 cents/gallon in the September 5, 2005 data point, when gasoline reached the unheard of price of (brace yourself) $3.06/gallon. That was right after hurricanes cut a swath through the Gulf of Mexico and the New Orleans area, and the next two weeks the price fell by 11.4 and 16.9 cents/gallon. The data shows no one-week movements in the 20-to-40 cent/gallon range, but quite a few between 10 and 20 cents/gallon.
So, it seems that this study is predicting something Really, Really Unusual will happen to make prices leap that much. What could that be? A war? A big announcement of a major production cut by OPEC or one of the major non-OPEC oil exporters?
Careful readers are probably waiting for me to say something about the fuzzy time frame–”around Memorial Day”. Which brings up yet another uncomfortable question: Does the study actually say “around Memorial Day”, or is that a characterization by the reporter? If the study is hyper precise on the price but fuzzy on the time frame, that says something odd about the study; if the study says something specific, like the price of gasoline will average $4.20/gallon for the first week following Memorial Day (just to make up an example), and the reporter knew it, then the reporter has some explainin’ to do.
Note that I’m assuming “U.S. retail gasoline prices may reach $4.20 a gallon” refers to the average US price rising to that level, as I’m sure there are plenty of spots where gasoline has already exceeded that price, which would make the study pretty meaningless.
So, what’s the point of this exercise in nano-nit picking? Simply this: Please be extremely careful when you read articles about energy and environmental issues. Always be on the lookout for assumptions and missing data and bias, which can be horrifically tough to find at times (although I don’t think there’s anything like that at play in the article in question). And most of all, keep your antennae raised for unanswered questions; sometimes they tell you more than the information in the article.
Before anyone jumps on me and asks how I know that gasoline prices won’t leap by 40 cents in about a week, let me spell this out: I’m not saying that they won’t. My crystal ball isn’t nearly good enough for me to put my name on that cut-and-dried a prediction. I’m merely pointing out that that the historical record clearly suggests it would take something pretty remarkable for that sharp a price increase to materialize, so it appears to be a very low probability event. If we had just a bit more information about the study we might be able to make a better assessment of the probability.
And if the reporter didn’t have access to the information (or had it under a press embargo) and had said, “When asked what might trigger gasoline prices to jump so dramatically, the study’s author declined to comment”, then we would know pretty clearly that the article was effectively little more than a free ad for the study, even if that was not the intention.
I exchanged e-mail with a friend yesterday, in which she related a story that I think is all too common right now in the US, with far-reaching ramifications: Driving upside down.
My friend, whom I’ll call R, is extremely knowledgeable about environmental issues, particularly global warming. And I do mean extremely knowledgeable. The problem is that she’s also one of the many people I’ve met who have fallen into orbit around one of the Big, Scary Problems we’re facing, global warming, and tend to dismiss the other, peak oil, as being insignificant by comparison. (Yes, we’re once again about to delve into the “PO > GW?” issue. Don’t worry, it won’t hurt.) I know people who fall on the other side of that coin, as well, but not as many.
About a year ago, R and her husband wanted to replace one of their cars, and she asked me for advice. I gave her my standard line about buying the most fuel efficient vehicle that could possibly meet their needs, and suggested a Honda Civic. For reasons I’m not aware of, they bought a Hyundai Santa Fe, a smallish SUV.
Most of you can guess where this story is going, but let me lay it out for the newbies wandering into the lecture hall for the first time today.
I e-mailed R links to some oil-related stories, and when she replied she told me that she and her husband wanted to trade in the 2007 Santa Fe, so they looked at a Civic Hybrid, which they liked. When they tried to strike a deal they found out that the trade-in value on their 2007 Santa Fe, which cost $23,000 new, was only $13,000. That’s right–a $10,000 drop in roughly one year, or $200/week.
R and her husband decided that $10,000 in depreciation was too high a price to partially escape the clutches of $4 gasoline, and that they would find ways to drive fewer miles and otherwise economize.
The point of this anecdote is not to brag about being right in my advice (for which, read: guess), but to use it as an opening to talk about some aspects of this general phenomenon.
First of all, I have to wonder how many consumers across the US are in a similar situation. They have a vehicle they would love to trade in on something more efficient, but it’s either worth far less than they’re willing to take on a trade, or it’s worth less than they owe on their loan–a situation some of the more colorful people in the cur business refer to as “buried alive, face down”. So, they keep the vehicle, keep driving it while “upside down”, and keep using more gasoline per mile, and likely more in total, than is good for them or the rest of us.
And notice that R’s vehicle is a Santa Fe, hardly one of the block-out-the-sun behemoths like an Expedition or Yukon or Escalade. Selling one of those dinosaur-size dinosaurs-in-waiting would be a nightmare. I’ve seen references in the mainstream press to some dealers not even accepting some SUV’s as trade-ins, and I find it very easy to believe in light of current gasoline prices plus the growing plethora of predictions for $150 to $200 oil in the next few years. If you were a car dealer, how eager would you be to have a very large pile of money tied up in a row of SUV’s under those circumstances?
Also, consider how long those shiny new SUV’s and pickup trucks people are buying today, even as I type this, will be on the road and consuming all that extra gasoline, often to fill no genuine need other than the desire of the owner to tool around in something big. Given the high proportion of those vehicles on US roads right now, that effect puts a serious delay into how quickly we can make the rolling stock part of our infrastructure more efficient.
But we shouldn’t get carried away with this “tyranny of the installed base” effect. The well known Hirsch report famously talks about it taking 20 years to completely replace the vehicles on the road, but that’s a simplistic view of the situation. It’s true that we can’t turn all the vehicles over much quicker than that (barring some hideously expensive and complicated “buy to crush” program where the federal government buys the vehicles and then scraps them), but we don’t have to. The supply of oil isn’t going to hit a brick wall and end, so our adaptations to the end of cheap oil similarly don’t have to happen in an eye blink, either. We can ride the curve of oil depletion, using less oil over time and keeping truly horrific human and economic consequences (at least within the US) at bay.
I can’t help but come back to the basic issue of consumers’ perceptions and which vehicles they buy. Specifically, I’m shocked by the number of people I know who literally don’t think of things like what the price of gasoline will be during the time they own the vehicle they’re about to buy, even when they have someone like me virtually screaming in their ear about higher gasoline prices and peak oil.
How do we get the message across to people that there is more than one dragon chasing us? Yes, global warming is a very serious problem, and yes, because of the time factors involved it’s something we need to get serious about right away, as in 20 years ago. But that doesn’t mean it’s the dragon that will catch us first. I’ve long been convinced that even though global warming has terrifying consequences unless we head it off, peak oil was the threat that would sink its teeth into us first. (In the short run, PO > GW, but several decades out, GW > PO, assuming we don’t do enough about GW now.) Worst of all, the arrival of peak oil’s horrors will make dealing with global warming all the tougher–people stuck upside down in an SUV won’t have a lot of money to pay for things like solar panels or better home insulation or more efficient space heating and cooling systems, etc.
Finally, let me stress that I’m not blaming R and all the other people who bought (and are still buying) such vehicles, even though I desperately wish I could have convinced them otherwise. I do think it’s fair, however, to recognize that while they’re paying a price for those decisions now, we’ll all pay for them in the coming years in the form of more gasoline consumption and more CO2 emissions.
Paul Roberts, author of The End of Oil, has an excellent survey article on the current oil situation in National Geographic, titled Tapped Out. It’s too long and detailed for me to do it justice with quotes, so I urge you to hit the link above and read it in its entirety.
Roberts is one of the authors I trust (despite the sensationalism in his book title), and in this piece he provides a very balanced but sobering summary of where we stand with oil, and why the age of cheap oil is over.
Please send a link to his article to your friends and relatives. This kind of mainstream-friendly treatment can’t get enough attention.
I ran across an interesting calculation in a presentation recently that I think serves as a good example of how careful we have to be about energy and environmental analyses and what conclusions we draw from them.
The number is in the presentation “Peak Oil”, by Paul Wallace, which was made at the event Peak Oil and Future Challenges: A Panel Discussion. (See that link for the Wallace presentation and others, all in PowerPoint format.)
One slide 9, Wallace shows a bar graph depicting the cost per tonne of avoided CO2 for various technologies, and he includes “Hybrids” at $250/tonne. Now, for anyone who follows such discussions, $250/tonne is several times higher than the CO2 prices that are bandied about. Could hybrids really perform that poorly according to this metric?
With one questioning eyebrow raised, I powered up my calculator and browser and ran my own set of numbers.
First, I picked a pair of car models. Since there is no non-hybrid Prius, I avoided it and used the Honda Civic EX and the Civic Hybrid. These cars are very similar in equipment, identical in size, and from the same manufacturer, so they present about as perfect an apples-to-hybrid apples comparison as one could hope for.
The 2008 Civic EX with automatic transmission costs $19,510 and gets a combined 29 MPG. The 2008 Civic Hybrid costs $22,600 and gets a combined 42 MPG.
Assuming the same number of miles driven, 12,000, and the same ownership period for the initial owner, 4 years, even if you assume that the hybrid has no greater resale value (which I’ll come back to in a minute), the cost per tonne of avoided CO2 is conspicuously high–depending on which factors you include.
The Civic uses 413 gallons of gasoline/year, compared to 285 gallons/year for the hybrid variant. That’s a savings of 128 gallons, or 2,560 pounds of CO2 per year, or 10,240 pounds, about 4.6 tonnes, over four years. At an initial price premium of $3,090 for the hybrid, that’s a “raw” savings of $671/tonne of CO2 avoided. Talk about a number that will raise some eyebrows.
But wait–during those four years, the driver is not just using less gasoline, but paying for less gasoline, which reduces that initial cost premium for the hybrid. Assume that gasoline in the US will average $4/gallon[1] between now and 2012, and suddenly the price premium shrinks dramatically–our hypothetical driver will buy 512 fewer gallons of gasoline over four years, for a savings of $2,048, dropping the premium to $1,042, for a price per tonne of CO2 avoided of $226, which is very close to Wallace’s number for a “back of the Internet” calculation.
I mentioned the assumption about trade-in value, which deserves more attention. If you assume that we’re headed for much higher oil and gasoline prices in the next few years, then I think you can assume that the resale value of a Civic EX (or any car of comparable size, efficiency, quality, etc.) will hold up pretty well.[2] The resale value of a Civic Hybrid (or comparable vehicle) should do even better, meaning it will further erode that hybrid price premium. With gasoline prices in the $5/gallon range in 2012[3], someone in 2012 choosing between a used Civic EX and a used Civic Hybrid, each four years old, would be looking at a fuel cost savings of at least $2,560 over the ensuing four years by buying the hybrid, assuming no further increase in the price of gasoline in the 2012-2016 time frame. If we allocate that $2,560 roughly equally between the resale value the initial owner of the hybrid gets at trade-in time and what the second owner pays for the car in 2012, then our first owner is actually receiving a premium for avoiding CO2, to the tune of about $51/tonne. (($1,042 - $1,280) / 4.6 = -$51)
My point here isn’t to disagree with Wallace’s number, but simply to point out via this example that we’re living in a time when shifting energy and environmental costs are putting major portions of the world and national economies in motion, in ways none of us has seen before. Therefore, the more real world factors we can (with reasonable accuracy) include in our numbers, not only the more accurate our conclusions, but the more surprising results we can find.
[1] Yes, I know, predicting the price of gasoline over a period of years is fraught with peril. But for the sake of calculation I need to plug in a number. Right now, I think $4/gallon will turn out to be slightly on the low side for the period May 2008 to May 2012. My gut instinct is that it will be more like $4.50 to $4.75, but I let it go at $4 to avoid the distraction of people saying I was cooking the books.
[2] The price of such cars probably won’t hold up much longer than 2012, though, as they’ll pretty quickly be seen as gas guzzlers compared to EV’s and PHEV’s. I expect this fact to be completely ignored by virtually all consumers, similar to the way many people buying SUV’s today probably aren’t thinking about where gasoline is headed in the next three or four years.
[3] Yes, another wild-eyed assumption. Again, I think this could be slightly low if we’re headed for a world oil production peak in 2011 or 2012.
This post is a market test, of sorts. I’ve long considered doing semi-regular posts focused on this kind of analysis. The goal of such a feature on the site would be to help answer specific questions about the economic decisions we all have to make, as well as help the energy geek wannabes out there gain some skill and confidence in their own calculator work.
So, tell me what you think, suggest new topics or a new approach for future “By the numbers” installments, or tell me it’s a dumb idea and where I can stick my calculator.
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Mathematics, rightly viewed, possesses not only truth, but supreme beauty — a beauty cold and austere, like that of sculpture, without appeal to any part of our weaker nature, without the gorgeous trappings of painting or music, yet sublimely pure, and capable of a stern perfection such as only the greatest art can show. The true spirit of delight, the exaltation, the sense of being more than Man, which is the touchstone of the highest excellence, is to be found in mathematics as surely as poetry.
– Bertrand Russell
Fifty-four years ago, one of the landmark science fiction short stories was published, a story that has increasingly uncomfortable implications for everyone alive today. Tom Godwin’s The Cold Equations, with its unblinking depiction of humanity in an indifferent universe, marked a crucial step in science fiction’s coming of age as an art form as it evolved from escapist crap into a far more serious genre of literature.
Sadly, and perhaps inevitably, it is now time for humanity to take the same steps that science fiction did, and recognize the coldest equation:
Let me take a second to deconstruct this brutally simple equation and it’s inescapable implications:
First, if either our population or our impact per person rises (which they both are), and the other remains constant, then our total impact also rises. There is no flexibility here, no loophole or exception possible.
Second, if we can reduce either the average human being’s impact on the world or our population, and the other factor continues to rise, then we’re only buying ourselves time before we exceed the carrying capacity of the planet.
Just to be clear, I’m using “environmental impact” in a much broader sense than I normally do on this site. When people in the industrialized world think of “environmental impacts” at all, they usually associate that phrase with CO2 emissions or mercury pollution, smog over cities, polluted streams and lakes, or perhaps mountain top removal coal mining. I’m using “environmental impacts” to mean all those things as well as the consumption of non-renewable resources. Every day that goes by in which we pull another 86 million barrels of oil, 8 billion cubic meters of natural gas, and 8.5 million tonnes of coal from the earth and pour another 75 million tonnes of CO2 into the air we’re having a huge impact on not just the environment but also on its ability to support us as we live now.
The crucial detail in the coldest equation is one of human perception. We all make the same implicit assumption that is increasingly at odds with the world we’ve created: we assume that those elements of the environment we rely on to sustain us are effectively infinite. Ask almost anyone if there’s an infinite amount of anything on the planet, and they’ll instantly dismiss the question; they there’s no such thing an infinite resource, so it’s obviously a trick. But nearly every one of us in the developed nations lives as if the resources we consume and the sinks of the land, sea, and air we fill with our waste are, in fact, infinite, as if the price of everything we buy or sell reflects its actual worth in the long run. Sum all those countless consumption decisions and the lifestyles and cities and organizations and governments they created over centuries, each ultimately built atop that shakiest of conceptual foundations, and we see a terrifying emergent property, a planet of 6.7 billion people racing ever faster toward a Malthusian cliff. As I’ve said before on this site, we are simultaneously emptying the world of its non-renewable resources and filling its sinks with our waste.
But wait, people say, what about all that energy efficiency stuff and green technology you talk about? Won’t it help? Yes, in one particular and crucial way: It will put downward pressure on the average environmental impact per person and buy us time to figure out a way to control, and then reduce, our global population, as well as find ever more ways to reduce our impact per person. Right now, with the compound and interrelated terrors of peak oil and global warming and food and water shortages all suddenly looming at once, extra time is an exceedingly precious thing.
Which brings us to the thorniest issue, the West not wanting to give up their lifestyles, coupled with the sudden emergence of portions of China and India as a Western-style consumer class. The sheer number of people in these two countries, roughly 2.5 billion or 37% of all humanity, means that even a small portion of them buying their first car or shifting their diet to include much more meat, or their country going on a coal power plant building spree (as China is doing right now) has worldwide implications, enough to raise the global impact per person in our equation. This is only compounded by the US, consumer of 25% of the world’s oil and emitter of about the same proportion of the world’s CO2, refusing to change without concessions from China.
In thinking about this, I believe I know the answer to Nick Bostrom’s question about the Great Filter, as he detailed in his Technology Review piece, Where Are They?: Why I hope the search for extraterrestrial life finds nothing. He ponders where the other intelligent life is in the universe, and whether the Great Filter, the most difficult phase in our development, the one that kills off most intelligent races, lies in our past or our future. My guess is that we’re in it right now, that it began roughly in the time frame depicted in the opening scene of 2001: A Space Odyssey with the use of tools by protohumans, and that we’ve yet to complete the exam. The test is not, as so many have speculated, whether we can overcome our militaristic and territorial tendencies, although that’s certainly a major part of it. The test is whether we can conquer those demons and also take the next and much more difficult step, and learn how to cooperate globally to live in a sustainable fashion, even if only as an open-ended expression of enlightened self-interest.
This is an imposing hurdle. A very large portion of the people in our world have become so cynical, so enamored of one conspiracy theory or another, and so often victimized by genuine conspiracies, that they either can’t, or won’t let themselves, summon the trust and compassion needed for cooperation on the scale needed. Their experience and (sometimes selective) knowledge of history have taught them to see the world as a matter of Us vs. Them instead of Us and Them. Their fear, ignorance, and myopia effectively changes all human existence from being an infinite game, with no set ending and no definitive winner, to a finite game between us and our own inner demons, a contest we can’t possibly win.
All is not lost, by any means, if only because we’ve already displayed the kind of cooperation needed. Perhaps every environmentalist’s favorite example is The Montreal Protocol, which phased out the use of CFC’s, albeit with not enough attention to HCFC’s. But as humanity continues to develop, that undeniable, narrow success is like a young child learning to sing her first nursery rhyme, decades before we’ll know if she can become an accomplished opera singer.
Many people I speak with about energy and environmental issues dismiss it all with a wave of the hand. They’re simply too busy with jobs and the million details of caring for their family and household to be bothered looking more than a few weeks into the future. They are so focused on the hyper-local, in both spatial and temporal dimensions, so tightly held in place by the glass fist that is their here and now, that they fall prey to that easy assumption that they live in a world of virtually infinite resources and sinks, which leads directly to their not taking any meaningful action to help themselves or those they love, let alone humanity as a whole.
Yes, this all sounds incredibly depressing. And it can be, if one surrenders to the cynicism. I refuse to take that step, the spiritual equivalent of suicide, because we humans can be breathtakingly altruistic and compassionate over short enough time frames. Watch news reports of tornadoes in the US, the tropical storm in Myanmar, or the earthquake in China, just to name three painfully current examples, and you’ll see many people risk their lives for strangers. In 1972, when I was a child, my mother and I lived through the Agnes flood in Pennsylvania, and we saw many such acts first hand and benefited from a few. That experience and nearly everything else I’ve seen in my life convinces me that individually we have the right characteristics–the self-interest, the compassion, the intelligence, and the organizational skills–needed to save ourselves and each other from this colossal mess we’ve created. The question then becomes: Can we find a way, and quickly enough, to cooperate on a grand scale and focus our abilities to avoid falling prey to the coldest equation?
I have a dilemma regarding what to do about your dilemma. The people I’m talking about are my readers, friends, and relatives who are popping up in my e-mail, asking me questions about whether they should buy a new car, when they should buy it, what they should get, etc.
The dilemma is not that I’m hesitant to opine about such things (Hello! I run a blog about energy and environmental issues. Have we met?), it’s that I can’t provide a meaningful answer to most of these queries without going pretty far out on a limb in making predictions about the price of gasoline, what car companies will be selling in a couple of years, what the US government is likely to do in terms of creating an energy policy (something which we really don’t have currently, unless you consider “What the big, old energy companies want, the big, old energy companies get” to be an energy policy), and how other consumers will react. To put it bluntly, I have to either refrain from telling people what I really think or make a big, steaming pile of assumptions and then draw conclusions from them. I don’t like either option, but I’ve decided to go with the latter alternative.
So, here goes nothin’….
First, the obligatory caveat: If you change your car buying plans based on what I write here, you get 100% of the credit if things go well and 100% of the blame if things go badly. I’m a geek with a blog, and if you allocate real money, whether it’s buying a car or investing, based on what I say here, then you’re taking a ridiculously and unjustifiably large leap of faith.
For a long time, I’ve said on this site that when you buy or lease a new vehicle you should get the model within your price range that just barely meets your requirements and delivers the highest fuel efficiency. Yes, people will also take into account brand and even model loyalty, which models come in a really cool color, cup holders, etc., but I’m focused on the e+e issues; those other factors are personal and it’s up to you to decide to what extent they play a part in your final decision.
Based on the e-mail I’m getting it’s clear that that general advice isn’t nearly specific enough. People are asking me about whether they should buy a cheap, non-hybrid or a more expensive hybrid. They want to know whether they should buy a current generation hybrid or wait for one with lithium batteries, and whether they should convert both vehicles in their household to more efficient models or go with one really efficient model and a larger vehicle (like a minivan). Ponder those questions for a moment or two, and you’ll see how all those assumptions I mentioned above come into play.
Hybrid or non-hybrid?
This is the decision I faced in 2006 when I no longer needed my minivan and wanted to buy something that would go a lot farther on each gallon of fossil fuel. I opted for a my often-mentioned Scion xA mostly because I drive so few miles, only about 3,500/year. Unless you make a wildly high assumption about the price of gasoline, I had no chance of earning back the extra cost of a hybrid during the time I would own the car. Also, I plan to replace this car with an EV around 2012, and since I didn’t know what the car market would look like in 6 years (from when I bought the xA), I didn’t want to run the risk of getting hammered by catastrophic depreciation. So, a $14k, four-door mini-wagon from a major manufacturer was a pretty solid pick for me at that time, and I’ve been very happy with it in just under two years of ownership.
In general, the basic economic decision comes down to payback. Figure out how many gallons of gasoline you’ll buy for each vehicle you’re considering, for each year you’ll own it. Multiply those gallons by the assumed cost of gasoline for each year, and total these yearly gasoline expenditures for each car. Low number wins the fuel cost race.
What about trade-in value? And leases?
This is where things get really nasty, on two fronts: Trade-in value today vs. that of the car you’re buying now after however many years you plan to keep it.
If you’re looking to buy a much more efficient car now, then the odds are very high that what you’re driving now doesn’t get 50MPG. With gasoline prices yet to hit their peak in the US for this year, and the resale value on many less efficient vehicles already plummeting, you could get a lot less for your trade-in than you were hoping. If it’s a relatively new SUV in excellent condition, it could be downright ugly.
Conversely (and perversely), the vehicles you’ll get the best deal on for a trade-in are the ones that you’d be far less inclined to want to trade in right now. This is what happens when market conditions change suddenly and “everyone” wants to do the same thing at the same time.
Looking ahead four to six years, you’re deep into the “here be dragons” part of your planning exercise. Perceptions of vehicle efficiency will change very dramatically in the next few years as we see more (and more efficient) hybrids, plug-in hybrids, downsized engines, more diesels, and even electric vehicles hit the US market, all likely by 2011. My xA will look like a gas guzzler when I trade it in for that EV in 2012, and I suspect many of the shiny new hybrids people are snapping up like candy today will have a similar, if not quite as pronounced, perception issue. Fifty MPG? And it doesn’t even have an option to plug in???
This argues strongly for buying a “transition car”, something that will do the job and minimize your depreciation risk while the car business radically reshapes itself in a few years. Which brings me to another long-standing recommendation: The less efficient the vehicle you need, the more seriously you should consider leasing instead of buying. Leases are calculated based on the assumed depreciation of the vehicle, and those assumptions are likely to be laughably wrong for many vehicles, and the most wrong for less efficient vehicles. In crass terms, by leasing a lower-MPG vehicle for three or four years instead of buying it, you insulate yourself from the chance that said vehicle will go off a depreciation cliff during that time, and all the risk remains with the actual owner of the vehicle, i.e. not you.
I haven’t checked lease terms on vehicles in a long time, so it’s possible they’ve already started to adjust upwards to take this phenomenon into account. And if they haven’t, I think it’s a very safe bet that they will, and soon.
Buy now or wait for the Next Big Thing?
People are asking me if they should wait for a plug-in or buy a current generation hybrid. And one did ask about whether it’s worth waiting for lithium batteries, as mentioned above.
By this point in the conversation you can guess that the “should I wait for a plug-in” question is riddled with assumptions. You have to make your own assessment of the price of gasoline in the next few years, the burden of driving your current vehicle while waiting for a plug-in, how soon plug-ins will arrive, what kind of effective mileage you’ll get from them (taking into account how diligent you’ll be in plugging one in and the relationship between the battery-only range and your normal driving schedule), and trade-in value issues, now, in a few years, as well as when you trade-in your to-be-purchased hybrid, plug-in or otherwise. Good thing this stuff is simple, right?
My hunch, and that’s all that it is, is that unless you’ll get hammered on your current trade-in, you should buy a hybrid (or really efficient non-hybrid) now. It seems pretty clear that in the coming years oil and gasoline prices will find more than enough upward pressure from rising demand in China, India, and some oil exporting countries to continue their general upward march, and that nothing will counteract that trend. As a result, your pain at the pump will only increase with your current vehicle, and that could make for a very long and unpleasant two to four years while you wait for a suitable plug-in or EV to arrive. And if plug-ins arrive at a much higher price and/or with lower battery-only range than you assumed, you could find that your expensive wait wasn’t worth it, after all.
X Factors
I know this is a lot to think about, but I think it’s also valuable to mention the X Factors in our immediate energy future. I define an X Factor as anything that could have a large influence on your decision and is also prone to large, difficult-to-assess changes.
The price of oil. While I think there’s almost no chance of a significant, sustained drop in the price of oil, we could be set for a huge increase. Pick your scenario–a new war in the Persian Gulf region, a terrorist attack on a critical piece of oil infrastructure (like the Strait of Hormuz), a hurricane ripping through offshore oil platforms in the Gulf of Mexico, a public policy blunder on par with the US ethanol debacle, or the widespread recognition that the crazy people who think peak oil is real and imminent are right–and it’s not hard to imagine oil reaching prices that make $125/barrel look like a bargain.
Batteries. I have no idea what kind of price/performance the batteries hybrids and EV’s depend on will deliver in a few years. (And I include ultracapacitors in this group, even though they rely on a fundamentally different technology.) We could see a stunning breakthrough that drops their price to the point where a 100-mile battery range plug-in costs $25k, or we could see negligible improvement, which would greatly slow the electrification of personal transportation.
Public policy. Anyone who pays even minimal attention to e+e issues can concoct a whole range of outcomes here, from “enlightened and genuinely useful” to “so bad I wish we had Bush back”. We just don’t know. Personally, I think a revenue neutral (or even positive) feebate program on cars would be a huge step in the right direction, but I’m not holding my breath. Another unknown is how global warming related policies will interact with transportation issues.
Electricity prices. Electricity rates are going up almost everywhere in the US, largely thanks to the rising cost of fossil fuels. I expect prices to keep rising thanks to fuel costs, downward pressure on CO2 emissions pushing us to alternatives, the skyrocketing cost to build nuclear plants, impacts from drought conditions limiting thermoelectric generation, and increased demand from people plugging in cars. But how much will they rise in a few years? Ten percent? Twenty? More? Or will the combination of solar thermal plants, conservation, consumer-sited solar PV, geothermal, etc. hold the line on future cost increases? My very rough guess is we’ll see prices rise quite a bit for the next several years and then flatten out for a while. This will slightly reduce the attractiveness of electrified cars, but it won’t come near making them a bad option, thanks to the rising price of gasoline in the same time frame.
Your personal commitment to conservation. Face it, a lot of people talk the talk but keep driving their SUV’s at extralegal speeds on unnecessary trips. In all of this evaluation and discussion, you can’t overlook your own lifestyle choices. Are you willing to use even a mild form of hypermiling (as I do) to boost your car’s efficiency by 10 to 20%? Will you reduce your miles driven, keep your car in the best running condition possible, and always use the most efficient vehicle available in a multi-car house? Will you really plug in your plug-in as often as you should? In extreme cases, will you move closer to work?
Summary
I’ve been predicting for a long time that we would encounter a period of confusion in the car market as many more technologies compete, forcing buyers to make a lot of tough decisions. What I didn’t see was gasoline prices rising as quickly as they have recently, making that situation all the more urgent for pump-pummeled consumers.
Above all else, make a personal commitment to conservation no matter what forms of transportation you use, and take a broad, forward-looking view of the situation when buying a new car. You won’t get every detail right, just as I’m sure I’ve said some things above that will prove to be embarrassing in a few years. But you’ll still be much better off thinking about all these technology and economics issues than buying based on color options and the number of cup holders.
My friend Pam e-mailed me a link to a truly fascinating piece in Technology Review about the implications of finding evidence of even long-extinct, primitive life on another planet. The author, Nick Bostrom, makes a logical connection that becomes blindingly obvious once someone turns your head and makes you look directly at it. Therefore, please consider this post my attempt to reach through the Intertubes, grab each of you by the noggin, and firmly but respectfully make you look in the desired direction:
Where Are They?: Why I hope the search for extraterrestrial life finds nothing.