Friday, January 22, 2010

Hotelling's Rule Beats Peak Oil Doom Every Time

The “Hotelling rule”, named after the late US mathematician Harold Hotelling, states that the price of an exhaustible commodity should converge towards the price of a substitute resource. _National

Peak Oil Doom is all about the massive devastating crash of the world economy that occurs, shortly after world crude oil production "peaks." The movement has collected a lot of adherents over the years, and several websites are dedicated to perpetuating the pornographic pleasure that peak oil doomers experience when contemplating the world after peak oil.

There is a serious problem with peak oil theory. It tends to ignore other forms of energy besides crude oil, which can be substituted for crude. Taking all the potential substitutes for crude oil into account tends to change the picture significantly.
From shale gas in North America to big new discoveries off the coasts of Venezuela and Israel, the recent appraisal of a huge Turkmen gasfield, new Australasian, Russian and Yemeni liquefied natural gas (LNG) projects and initiatives to reduce gas flaring in Nigeria, Russia and Iraq, it has never been clearer that the world is floating on a party balloon of gas.

Ironically, the more geologists search for oil, the more they usually find gas.

Consequently, gas prices have fallen in markets where the commodity trades freely.

Not so long ago, gas produced from oilfields was considered a nuisance, and it was burned as waste.

Now gas is a valued commodity for heating, power generation, the production of petrochemicals and fertiliser, for pushing more oil out of the ground, and even for conversion into synthetic crude oil and for use in some diesel engines.

Like oil, it can now be shipped around the world in tankers as well as moved through pipelines. If global warming continues, LNG tankers may soon ship gas from the Arctic.

Because of its infrastructure requirements, however, gas has most often been sold under long-term contracts linked to crude prices. In future, if Dr Austvik is right, crude markets may follow international gas prices. _National

Important new crude oil discoveries are being made on the continent and continental shelves of North America. But North America with its massive coal reserves, its trillions of barrels of oil sands bitumens and oil shale kerogens, and its massive new finds of natural gas, is in an excellent position to substitute "home grown" fuels for imported crude oil, if necessary.
Texas A&M University said US methods could increase global gas reserves by nine times to 16,000 TCF (trillion cubic feet). Almost a quarter is in China but it may lack the water resources to harness the technology given the depletion of the North China water basin.

Needless to say, the Kremlin is irked. "There's a lot of myths about shale production," said Gazprom's Alexander Medvedev.

If the new forecasts are accurate, Gazprom is not going to be the perennial cash cow funding Russia's great power resurgence. Russia's budget may be in structural deficit. _Telegraph

There is of course another kind of oil -- bio-oils. Bio-oils from microbes are the next big liquid fuels revolution (after CTL coal-to-liquids, GTL gas-to-liquids, and BTL biomass-to-liquids). It will take 10 to 20 years for microbe-produced oils to begin hitting the market and begin enacting Hotelling's Rule of economic substitution. BTL, CTL, and GTL will hit the markets much sooner.

And then there is the nuclear revolution -- safer and more efficient reactor designs just waiting for more enlightened governments in North America, Europe, and elsewhere to approve the next obvious step in large scale power generation.  It takes about ten years to construct a modern nuclear plant once approved, but the Luddites in the Obama - Pelosi government and its alliance with the reactionary faux environmental factions are obstructing every form of useful new energy as far as possible -- including nuclear.

Peak Oil Doom is the twin of Climate Catastrophe Doom.  The two movements conveniently dovetail, since Peak Oil Doom uses Climate Catastrophe Doom in an attempt to deny the use of coal, gas, kerogens, bitumens, heavy oils, and even regular crude.  These faux environmental political movements are oriented around the hobbling of the industrial base of the western world.  It is simply a matter of the consolidation of political power through energy starvation and a general economic hardship.

But the plan will not work, unless the Obama - Pelosi government is allowed to complete its well mapped agenda. There are several reasons -- including this one -- to doubt that the O-P Reich will have enough time to finish the job.

There are plenty of reasons to be concerned about the future of human governments and human society. Falling into a zombie panic over phantom doom will help no one.  It will only prevent us from doing what has to be done.

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