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Tuesday, December 28, 2004
 

Geology vs Economics - the Match of the Century


I must admit, I put my money on the geologists.

There is an important debate between Geologists and Economists as to the importance of fossil fuel depletion. Geologists take the view that "once its gone its gone". Economists take the view that as the price goes up alternative sources will be found.

To some extent they are both right. The difficulty is that we need to get the starting Joules from somewhere which is what tips the balance to the geologists. Fossil fuels are a reserve of solar energy that has been hanging around for millions of years. People think that hydrogen or electricity will be a source of energy. However, you need energy to produce electricity or combustible hydrogen so that is a complete non-starter as a source of energy. It can be used for temporary storage, however.

One of the biggest ironies is that there is a perspective that there is insufficient fossil fuel to even fuel sufficient to meet the Kyoto limits going up.

Hard Scientists accept that there will come a point at which the annual production of fossil fuels will peak. The question is when.

The UK's production of conventional crude oil peaked in 1999. Oil depletion has hit many countries who have now hit their peaks. Countries such as Venezuela are hitting the economic consequences of this.

One of my favourite sources of information is Colin Campbell's spreadsheet looking at depletion country by country. There are various places this can be obtained from. Starting at Hubbert Peak.com is a way of finding out a bit more. There are those that argue the peak was in 2004. Alternatively it may be later this decade (for conventional crude oil). Gas is a bit harder to move around requiring either a pipeline or inefficient liquefaction.


There is then the question as to whether or not peaks in prices cause recessions. I am with the empiricists here. Generally price hikes have led to recessions. The implication, of course, is that once we get into general reductions in energy availability we will get a different economic paradigm.


The irony, of course, is that the war in Iraq has partially caused a peaking of prices as a result of reducing the oil exports from Iraq (from about 2.5mbd before the war to about an average of 2 for the first 9 months of 2004, 2003's average was 1.3mbd - source EIA - US Govt). Another example of the law of unintended consequences.

 
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