Purchasing Power

(Nominal GDP in terms of Barrels of Oil) per Capita

Interpret at will.  Today, domestic oil consumption represents about 4% of the US GDP, so while a key input to the overall economy, not a great proxy for overall inflation.  Instead, I think this metric (or perhaps its first derivative) is more plausibly characterized as economic ‘head winds’ or ‘tail winds’.  This is why we frack.

Still, the ‘bubble’ from 1984 to 2007 coincides pretty well with ‘The Great Moderation’.  Those days seem long gone.

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8 Responses to Purchasing Power

  1. RS says:

    Suffice to say the US has throughout my adulthood shown ‘some’ tendency to produce bubbles. Looking past the MSM, reports from the fracking front seem to be mixed, as to whether they can make a profit at the current $110 price of Brent crude. And there is so much financing of capital equipment that it’s hard to tell, given the uncertainty over how much oil and gas can be got in the future with what level of effort — naturally, they go at the best sites first.

    I refer not to reports by prejudiced or ideological persons, but by the ones actually fracking (some reports secondhand).

    I suspect we face declining energy consumption except to the extent that we can get more uranium electricity online. (There’s a much larger reserve of thorium, but I understand its a less well-demonstrated concept..) Unfortunately reactors cost a fortune up front, uranium costs little.

    Natgas is largely substitutable for liquid/fluid fuels (key exceptions are jet fuel and chemical feedstocks), but the reserve of cheaply producible gas seems not that much better than that of crude. Meanwhile there are vast costs to adapting downstream machinery to gas, and even higher costs for adapting it to electricity.

    I’m not sure you can synthesize hydrocarbons, even just methane (natgas’ main component), economically with electricity. You can sort of ‘synth’ hydrogen but my understanding is this is grotesquely inefficient.

    Given the relevance of all this I am amazed how little y’all talk about it. I think we are just gonna go down, down — decade by decade. OECD consumption of liquid fuels peaked in 2005. The CPI and ‘real’ GDP are worthless for any remotely-precise purposes (see Devin Finnbar), and we know consumption of staple products (cars, meat) has been gradually dipping in the USA for years. A lot of Arab Spring states, rather modest crude exporters though they had been (except Libya), stopped being net exporters right when all the stuff started. That’s also exactly when the price of food lofted by 130% or something. There are about 10 kcal of fossil carbon behind every kcal of food on your table ; that, of course, is precisely why half of us aren’t out in the fields right now as we were in 1915, and I would guess its much the main reason food shot up.

    • Handle says:

      I do actually worry quite a bit about fossil energy economics and sustainability. The major untold economic story of our time is the heavy reliance on China’s rise on the comparative advantage of their availability of ultra-cheap domestic coal and a environmentally permissive (probably too permissive) regulatory regime regarding its combustion. China and Mongolia’s reserves are vast, but not vast enough to raise them to Korea/Japan levels of consumption per capita and economic development before production plateaus. And coal is costly to transport. In a few decades, all of East Asia, save Siberia, will be exhausted of most fossil reserves. Lots of people will have to rely on the Russians.

      I tend to agree with CERA‘s analysis, that global supply of petroleum is inelastic, it will grow slowly and then plateau and stabilize, at gradually climbing real prices, which will encourage the development of increasingly expensive productions to replace the loss of cheap supply. Costly extraction from tar sands, fracking, shale, and conversion of ultra-heavy crude (like in Venezuela) will come to represent a larger and larger portion of global supply.

      As a long-term strategic bet, there is plenty of coal in the US and Russia that can be converted into liquid fuels profitably at current prices. Sasol is the world’s giant in this regard, but China is toying with it, and the US and Russia have experimented with it on small scales. Companies to look at are Syntroleum and Rentech, but the market and regulatory climate aren’t right. Water supply is also an issue.

      The major regulatory uncertainty is CO2 emission regulation. If one could confidently expect CO2 to go unregulated, or only taxed a modest amount, then companies would begin to build up capital and we could synthesize all the affordable liquid fuel the world needs from domestic coal for the rest of the century.

      Instead, we’re likely to see oil very gradually rise to $200 a barrel and watch the Russians pick up the $20 bill we left lying on the ground.

  2. RS says:

    > Natgas is largely substitutable for liquid/fluid fuels (key exceptions are jet fuel and chemical feedstocks), but the reserve of cheaply producible gas seems not that much better than that of crude.

    Unless one is a fracking optimist, that is.

    US proven reserves of tight (frack) oil = nothing much in the grand scheme of things. (And yes, these reserves were mostly known a long time ago, only there was nothing to be done with them.)

    US reserves of tight gas OTOH = potentially vast

    world reserves of tight oil & gas = unknown to me

    ‘Tight’ simply means the rock pores containing the goods are small, or poorly networked, meaning your work’s cut out for you.

  3. RS says:

    I largely agree, though I have seen a few non-crazy people (say Randall Parker) be much more skeptical of US coal reserves than you are.

    You lean against very large amounts of CO2 getting emitted via liquifaction of coal etc. I don’t know, I lean the other way. But its a guess. But I do think a liquid fuels crisis quite likely exists, and other responses (this being the more guessy part) seem daunting.

    All this stuff is so much harder than the great HBD debate, where there is very roughly as bewildering an array of thrusts and parries, but it doesn’t take long to see that one side keeps taking it on the chin.

    And man o man, is it considerably more multiplex. You got your global warming question, reserves/EROI questions for all the fuels, geopolitics, climate engineering, will people other than France ever embrace uranium (Fukushima was potentially world-historical in this respect)…………. its madness.

    • Handle says:

      ‘You lean against very large amounts of CO2 getting emitted via liquifaction of coal etc.’

      Let me be more precise. I think the synthesis of liquid hydrocarbon fuels from coal would emit a lot of CO2, if it were to be done on a large scale. But I expect CO2 regulation, de jure, or more like de facto through administrative+bureaucratic discretion and executive+judicial fiat, and so I don’t think the US will be doing much coal-based synthesis. I also think this is too bad.

      I am a ‘lukewarmer’, which means I believe CO2 impacts on climate to be mild, and, like David Friedman, that the secondary impacts on the economy are ambiguous. Even if I’m in a generous mood and grant the climate alarmists their weakest cases, they still almost always get their economic-analysis-of-policy wrong.

      As an example, you see a lot about ‘tail risk’. ‘It is justifiable to spend X now because there is a small but non-negligible tail risk of disaster with cost greater than X’. The problem, however, isn’t ‘the’ tail risk – there is no such thing – it’s the estimate in the differential between expected tail-risks between the baseline and the policy. What folks like Lomborg point out is that, even under extremely assumptions extremely generous to the alarmists, typical CO2 reduction policies spend a fortune on a trivial amount of risk reduction. So much of what goes on in that field is just senseless.

  4. RS says:

    Other than the necessity, or quasi-necessity of a pipeline — you can and do compress or liquify it ($$) for ship transport — natgas is practically as good as oil in the large majority of applications, at least according to some sources. (Shockingly, others disagree at least in part.) I believe one exception is asphalt, which I noticed is not exactly the most durable substance in the cosmos. Anyway, natgas internal combustion engines do of course already exist, and phasing them in is one at-least-conceivable alternative to the $200 crude scenario.

    For awhile, anyway. Don’t ask me about the year 2213.

    And apparently you can’t put a natgas pipe on or in the sea, not sure why.

    >> You lean against very large amounts of CO2 getting emitted via liquifaction of coal etc.

    Ah, I was ambiguous. I meant that you think it fairly unlikely to occur (regardless of why/ why not) — not that you think it fairly unlikely to be a good thing.

    Though of course the latter is as-interesting a question.

    > The problem, however, isn’t ‘the’ tail risk – there is no such thing – it’s the estimate in the differential between expected tail-risks between the baseline and the policy. What folks like Lomborg point out is that, even under extremely assumptions extremely generous to the alarmists, typical CO2 reduction policies spend a fortune on a trivial amount of risk reduction.

    One could point out that there are other possible mega risks, too, to drop money on. How do we assign CO2 risk reduction a particular value, in relation to money, meat, cars, or anything else, without considering other super-risks. It’s easier to cognize this concretely: the risk from riding my bicycle 100 miles sans helmet tomorrow has one value if I’m having risky surgery next week, and a different value if I’m not.

    I wonder how much evidence there is that the next glacial won’t start soon. That would be . . . bad and I’m not sure what response is possible. Asteroids, megavolcanoes, novel epidemics, electromagnetic pulses from the sun or whatever, are all things I think R Parker takes seriously. Stuff happens. Stuff as rare as the Chicxulub astroid is one thing, but some things happen rather more often than that.

  5. RS says:

    Check this. Is all of it legit? I don’t know, but the end-part is quite surprising.
    http://en.wikipedia.org/wiki/Quaternary_glaciation#Next_glacial_period

    • Handle says:

      I think that modern humanity is increasingly capable of adapting technologically to any climate phenomenon. If today’s high and low were two degrees warmer, how much would that impact an ordinary urban life, economically, on average? It could be positive or negative, but whatever the sign, it’s got to be a trivial number.

      But even more trivial is the marginal change in that trivial number from implementing CO2 emissions reduction policy. And even more trivial than that is what’s left after the offset in the marginal change from outsourcing the emissions to other non-cooperative countries [cough, China, cough].

      That insignificant residue of an actual effect on the economy can’t possibly justify the cost of those policies.

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