by Tyler Cowen
on April 4, 2013 at 12:19 pm
in Uncategorized |
1. How are peak oil predictions holding up?
2. Kirznerian alertness: Met spots a David for $840.
3. Dan Ariely on his on-line teaching.
4. More on the reality of Mexican economic growth, not just for a few.
5. Are swallows evolving to better dodge traffic?
6. Overcoming bias: the real solution?, and why are action movie stars more likely to be Republican?
7. The price chart for Renewable Identification Numbers.
8. Ken Rogoff on the puzzle of persistent low interest rates.
Swallows and other birds will have to evolve even more quickly as the drone revolution takes off.
African or European?
Energy revolution sparks ‘peak oil demand’ theory, Matthew Allan, 4/4/2013
There’s a new ‘peak oil’ theory doing the rounds, this time with a twist: instead of an imminent peak (and subsequent decline) in global oil supplies that causes oil prices to soar, oil demand growth is expected to slow down more quickly than expected and this will result in lower oil prices going forward.
In a report titled, ‘Global Oil Demand Growth – The End is Nigh’, commodities analysts at Citigroup predict that oil demand growth is likely to be hindered by cheaper substitutes and improvements in fuel efficiency.
A boom in US shale gas production has caused natural gas prices there to plummet, and that in turn is enticing industrial energy users to switch to gas-fired power generation rather than oil- or diesel-based power generation. Continued improvements in automobile fuel economy will also limit demand growth from emerging economies, with Citigroup predicting fuel usage will drop by an average of 2.5 per cent per new vehicle each year.
Citi’s long-term view is that the structural bull market of the previous 10 years or so will not be repeated this decade; instead, “by the end of the decade Brent [oil] prices are likely to hover within a range of $80 (£53) to $90 per barrel”. That’s down from about $111 a barrel today. However, that theory rests on certain technologies being widely adopted – such as large-scale gas-fired trucks, trains and ships – as well as continued anti-carbon policy adoption by governments.
Even economists at perennially bullish BP (BP.) admit rising unconventional energy supplies are playing their part to limit further big price gains. In its BP Energy Outlook 2030, the company forecasts global shale gas production will more than treble and tight oil supplies will rise more than six-fold over the next two decades. That said, BP also argues strong oil demand growth from developing economies will outweigh improvements in fuel efficiencies and rising unconventional energy supplies, such that new sources of conventional oil will still need to be found.
Peak oil theory predicted catastrophe. This hasn’t happened.
No, not really. A lot of peak oil advocates predicted that. The actual theory predicts that oil production in a given region will tend to follow a bell shaped curve.
Conflating Peak Oil with peak oil proponents is a lot like conflating A. Global Warming with AGW advocates. The basic theory is sound, but a lot of doomsayers latch onto the idea and predict catastrophic consequences that have little to do with the basic theory.
@JWatts: The only reason to care about Peak Oil at all is if the eventual decline in oil use will be catastrophic; thus, the only *interesting* versions of Peak Oil, with policy implications, and which were used to browbeat optimists, were the ones predicting catastrophe. Nobody jumps on a major bandwagon to promote the idea that “Hey folks, we’re going to gradually transition away from oil in the future and it might be harsh or gentle but we don’t know!”
So sure, we should avoid taking strawmen as being representative. But we should also avoid the game of plausible deniability, reverting back to a boring position the moment our extreme position gets proven wrong, acting like “we were always saying the boring one”.
I’ve written as much about peak oil as anyone. And I have steadfastly resisted the we-will-eat-grass-and-live-in-a-yurt view of the future.
Nevertheless, it is fair to say that a number of dire predictions have come true:
- an end to growth: largely true in OECD
- economic calamity: see the NYT’s unfavorable comparison of Greece to the US Great Depression
- the collapse of finance
- fiscal crisis
- population declines (reduction in births)
- bank runs and failures
- sovereign defaults
A lot of those predictions really have come true.
yeah, the human species is in total free fall. it keeps me up at night, thinking we might level out at only 9 or 10 billion or something.
“The drop in U.S. births to their lowest level since 1920 is sounding alarms about the nation’s ability to support its fast-growing elderly population.”
While conceding the point that often oil price increases seem to occur at the same time as global financial problems, I submit that the more likely link is around the monetary tightening that took place to deal with the inflation that resulted from the oil price increase. And of the current problems that you list, it would be hard to link most of them directly to the recent increases in oil price directly – as even you I think would admit they have a more immediate direct explanation.
I personally took James Hamilton’s post as one of the best examples of confirmation bias I have ever seen. Its amazing how even smart people can be so wedded to a theory, that they can look at any data and justify it to themselves as proof of their theory. I mean most of his production graphs for oil were clearly sloping upwards. He showed the long run data on US oil production to minimize the recent uptick in production, while showing much shorter time frames for world production data (if he showed world oil production back to 1950 it would show a nearly straight line upwards).
Of course prices of liquid hydrocarbons have increased, but I suspect that is due more to increased demand from China and difficulty in the oil industry in expanding supply to meet the new growth rate in oil consumption. The difference in a growth rate of, say 1% and 3% is very significant, even though it may not seem so. This means that the oil industry needs to add three times as much net capacity per year as it used to previously. It is very hard to triple new supply in a short period of time, the effect on the industry supply chain is even worse. Eventually either the oil industry will develop the capability to add this new capacity, or more likely China’s oil consumption increase rate will fall to more normal levels. It is a pretty unique time for the human race, basically 1/4 of the world is going through rapid industrialization in the space of 20 years or so. Its amazing and a tribute to the worldwide capitalist system that this has been absorbed with so little effect.
The inflection point is the data can be perceived by simple visual inspection. It occurs in Q4 2004, just as Ken Deffeyes predicted. Considered: From 1995-2004, the industry saw $2.4 trn in upstream spend, and the oil supply increased by 12 mbpd. From 2004 to 2012, the oil supply (all liquids) increased by 6 mbpd, but on 2.9 mbpd was crude oil and lease condensate. The remainder was NGLs and biofuels. And we spend $3.5 trillion, that is, trillion dollars doing for that result.
Now here’s the deal, nothing special was happening in the decade to 2004. China was not a big pull, nor were oil prices particularly high. Indeed, 1998 saw some of the lowest prices in the historical record. On the other hand, prices have quadrupled since 2003, and the oil supply has hardly budged, even as China appears as a huge source of incremental demand. And remember, such growth as there is includes oil sands, shale oil and Iraq. So that’s the growth with unconventionals, not just the plain old conventional oil we had in 2002, say.
So, as a practical matter, the oil supply did peak in late 2004. You can see it clearly if you work regularly with the data. It has not peaked in absolute terms largely because we have nearly tripled upstream spend over recent years. But we’ve nearly exhausted that possibility now as well.
As for Jim Hamilton: he doesn’t do confirmation bias. He is the most sober and balanced economist covering the macro oil outlook.
Maybe if the production graph presented by Jim Hamilton covered more time than just the last 10 years we could see the inflection point better.
On the matter of China – I agree that before 2004 China was not really an issue, demand growth was being driven largely by the mature western economies, basically adding 1% per year, China was growing fast then, but it was still small. Now they are big and their demand is a big part of the world demand for energy. To be clearer, what I am saying is that prices have gone up because of the rate of increase has increased. That also drives up input costs (in fact that the reason the investment level have gone up). You now need to add capacity at 2 or 3 times faster than before. Tripling the size of the industry means that the marginal cost curve shifts upwards to more expensive capacity (to add oil). So this is an issue around the amount of capital (people, equipment, political systems and so on). Look at the supply curve to add capacity not the existing capacity.
Canada is a good example – they have all the oil sand they need to boost production many time. But they haven’t. Why – its about lack of men, machines, pipelines, refineries etc. Not physical resources. Venezuela is another one.
And I don’t know why you say that production hasn’t increased, Hamilton himself says;
“The most recent number (December 2012) was 89.3 million barrels a day, 4 mb/d higher than where it had been in May 2005.” He says that half of this growth is in NGLs, but that is really not relevant, after all NGLs are near substitutes for oil, and receive a similar price. But even if it was then there was still growth of 2 million barrels a day after the “peak”. A funny sort of peak.
Here’s a graph that shows the impact of the inflection point in the oil supply:
If you work with data in the oil business, you keep running into graphs like this all the time. You can see the oil supply stall out on this one pretty clearly.
The oil business has been going flat out for years, and we’re still not able to move the needle. The only real upside to the system has been Canadian oil sands, posting a great year last year (+270 kbpd); and US shale oils, up 1 mpbd last year. The oil sands are difficult to develop and require a high oil price, around $120 Brent for a new upgrader (refinery); or about $90 for an in situ or mined project to serve an existing upgrader. So it’s not like unconventionals are a nice addition to other activities; they are literally the only source of net growth in the system. That’s pretty scary, actually.
You are cherry picking data points. Worldwide average human wellfare is better today than in 2005-2008 due to the continued real growth in China. Besides which, claiming that oil prices are responsible for Greece is just silly. But if we are just going to look at overall economic conditions so blindly, we should consider the whole picture then. And in the whole picture China is doing better despite needing oil and a lot of people live in China.
I don’t disagree. China and other emerging economies are better off. Europe, the US and Japan are not better off.
The problem is that, while the liquids supply has in fact grown, it hasn’t grown a lot. As a result, oil consumption has been reallocated from OECD to the non-OECD countries. Indeed, the OECD countries must continue to adjust to a chronic reduction in their oil consumption, by about 1.5% per year.
Does such a reduction have an economic cost? Well, if US consumption is set to fall by 1.5% per annum, then oil efficiency must increase by at least 4.5% per annum if the economy is to grow at 3%. It is not clear that this is feasible.
My best estimate suggests that declining oil consumption is knocking 0.7-1.2 percentage points off GDP.
By the way, this is also the answer to Tyler’s first dreaded question, about raising GDP growth rates. Want more growth, get more transportation fuel.
#8 is an interesting read. But I don’t quite understand this part:
“Tighter regulation of lending standards has shut out an important source of global investment demand, putting downward pressure on interest rates.”
Wouldn’t tighter lending standards restrict supply, rather than demand? And then wouldn’t that put upward pressure on interest rates? Can anyone clarify this for me?
Uh? Tigher lending standards presumably means that less people are able to borrow, because less can meet the standards, so demand is reduced.
The supply (i.e. amount of money waiting to be loaned) is unaffected.
>Why Are Action Stars More Likely to Be Republican?
That article seems to think that Action Stars are Republican because Republican foreign policy is more aggressive and guys with stronger upper body strength is more aggressive.
But nothing I have seen in my lifetime or having read in the past generation has led me to believe that Republicans have a more war-like foreign policy. Seems to me to be about the same. Perhaps it’s perceived aggressiveness?
Perceived aggressiveness and style, yep.
More to do with demeanor and confrontational attitude than anything else.
There seems to be a lot wrong with that article.
Fighting ability, largely determined by upper body strength,… Really? I would think strength and size in general would contribute to personal unarmed fighting ability, boxing, brawling, etc. But upper body strength has little to do with gun fighting or flying a jet fighter.
Multiple studies conducted from the US, East India, Bolivia and the Central African Republic show that physically strong men have a greater sense of entitlement, a shorter fuse on anger, and are more likely to turn aggressive when angry. The effects are quite substantial, often two to four times larger than the known effect of testosterone on aggression..
What’s the direction of causality here? Could it be that aggressive angry men tend to either become physically strong or change their attitudes?
Using a sample of Hollywood stars they demonstrated that those actors known for their physical strength and formidability, among them Arnold Schwarzenegger, Bruce Willis, Chuck Norris and Sylvester Stallone, were more likely to support military action.
Again, what’s the direction causality here? Perhaps, men who are more likely to support military action are also more likely to seek out those kind of roles.
But upper body strength has little to do with gun fighting or flying a jet fighter.
If you are fighting a walk ten paces turn and fire sort of gun fight then upper body strength doesn’t matter, but if you are running from cover to cover trying to get the best shot while avoiding being shot, upper body strength helps with climbing over obstacles, carrying extra ammunition, carrying a wounded comrade etc.
Upper body strength per se might not have much to do with flying a jet fighter, but you have to be in very good shape to withstand the g forces involved in modern air combat.
Presumably their focus on military action was simply a statement of liberal prejudice.
But in general, men who can take care of themselves in most situations – foreign or domestic – are probably more likely to be Republican all other things considered. While men who feel themselves powerless or weak might prefer a strong government to save them.
I am dubious about these sort of studies, but as they speak to my prejudices, they must be true. Well, might be.
Or perhaps your statement speaks to your bias? It could easily be rewritten this way:
Men who take care of themselves in most situations – foreign and domestic – are probably more likely to be Democratic, all things considerd. Those who feel powerless or weak might prefer a party such as the GOP that favors higher military spending for protection.
I liked #8. I also liked Martin Feldstein’s take: http://www.project-syndicate.org/commentary/higher-interest-rates-and-financial-stability-by-martin-feldstein
I suspect real rates will be low for at least the next ten years, but inflation and nominal rates might push upward, with dire implications for public finance. As Buffett says, bonds should come with a warning label right now.
@#8 – Rogoff always writes predictable, boring pieces. He’s no econ master, though a chess grandmaster. TC also plays it safe in his NYT articles, playing a middle-of-the-road view. In chess parlance, they play a patient, defensive game, akin to GM Petrosian or Botvinnik, as opposed to a more unconventional, attacking players like GM Fischer, Tal or Kasparov. Current #1 GM Carlsen’s style is somewhat hard to label, as he also at times plays boring chess and waits for his opponent to make a mistake.
Just read the comments by Fair Economist at the linked article for Peak Oil. You can’t cherry pick the craziest opponents of Peak Oil as a way of evaluating Peak Oil’s prediction. Things have not unfolded according to Peak Oil’s predictions and it’s underlying theory are useful for predicting the future. That’s all you need to know.
Dan Yergin is not a crazy, and certainly not the craziest opponent of peak oil. He is an incredibly erudite and knowledgeable guy. How his guys Jackson and Esser could screw up a bottom-up forecast that badly in 2005, I don’t know. But IHS CERA is often treated as a by-the-kilo consultancy in our industry. For example, they projected $4 nat gas out to near 2030 for ANGA. But look at any of the i-bank analysis, and they tell us the median full cycle cost for nat gas in the US is $7. For Chesapeake Energy, the full cycle cost is well nigh $10! And you think nat gas will be $4 in 2030? Who’s going to produce it?
As for T Boone versus Matt Simmons (the latter being the alternate choice for Pickens), one could make the case for Simmons as the more lionized champion of peak oil. But Matt was way out on a ledge in his final years. For example, he suggested the Macondo spill was as great as Saudi reserves–no way a single well could accomplish that.
Hamilton has been engaging with the peak oil crowd for a decade now. (His was possibly the very first blog I made a point to read, waaaay back in the day.) If anyone gets to declare it dead, it’s him.
Hamilton is not declaring it dead. He is commenting that those who say it is dead are wrong.
‘Knowing all the facts today, of the assessments offered in 2005 by Pickens and Yergin, which one would an objective observer characterize as having been closer to the truth? How could anyone come away with the conclusion that those who saw the world as Pickens did were “dead wrong”?’
‘this much I’m sure about: those who assured us that Saudi production was going to continue to increase from its levels in 2005 are the ones who so far have proved to be dead wrong.’
#4. More on the reality of Mexican economic growth, not just for a few.
That’s a pretty good article by Noah Smith. The Mexican economy is growing and Mexican median income is growing with it. I’d love to see a substantially richer Mexico.
4. I agree that a richer Mexico would be nice.
But the fact that the author mistakenly used GDP growth unadjusted for inflation to declare an economic miracle detracted from the article. Real GDP is only now advancing above the levels of 30 years ago.
5. Are swallows evolving to better dodge traffic?
I’ve often wondered this about fish. Many lake fish, like sun fish for example, have been
intensely sport fished over many many generations of fish. You’d expect the ones
that don’t take the bait would have an evolutionary advantage, leading
over time to fish that are harder to catch.
Fish are supposed to be getting smaller as all the little ones get thrown back.
Hedgehogs in Britain are also supposed to be responding to the dangers of freeways by running instead of curling into a ball.
6. “…Before the development of the contraceptive pill, the fertility of women often trapped them in traditional patriarchal families.”
I couldn’t read any more of the article after that as I have a 0-tolrance policy on thinly-veiled misandry. Women were no more “trapped” in the prevailing social order than men, who in turn had the obligation of working to provide for the wife and child under pain of social ostracism.
Remember that today: Women have rights, men have responsibilities.
^ people have rights and responsibilities. FTFY.
However, most vaginas can be readily rented out for around $200/hr, while most penises are unmarketable.
That gives a fundamental innate competitive advantage to women.
never mind claudia. she’s stuck on her wheel.
Love the name, by the way.
X and mr. lies, you two are adorable. Seldom do I get responses with disembodied sex organs and hamster quips. But never mind me, I do prefer the competitive advantage that comes from being ignored (initially).
>>Women have rights, men have responsibilities??<<
That which can be asserted without evidence, can be dismissed without evidence.
Nah, why don't I just state that men now are routinely awarded joint custody in divorce. That's a right – innit?
MRA dudes really such illogical dick monkeys.
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