What will you pay?

I am developing a price calculator that will help answer the question “what will you pay for gasoline?” It will be on this web site in the next few weeks; until then, here are some preliminary results…

When people take into account the time they save by driving versus taking transit or bicycling, and the monetary value they put on their time, the numbers for typical trips are somewhat alarming. The calculations suggest that people would pay at times $4 to $8 per litre of gasoline (or $12 to $24 per gallon.)

To me this suggests that shortages, not prices, may end up providing the supply limit for gasoline. Check back and check it out for yourself.

Is “peak oil” a contaminated brand?

This was triggered by an article I read today regarding oil price influences and the death of Al-Zarqawi. The author describes "peak oil" as a "contaminated brand name." I wrote this response in agreement:

The problem as I see it is that people nowadays (as did Hubbert himself) try to use the peak oil "theory" to predict future supply and demand to the nth degree. Kenneth Deffeyes goes on for pages and pages (in an otherwise enlightening book) trying to demonstrate that the true curve is Gaussian or Lorentzian or Logistic. I have two degrees in physics, and even if one of those curves were a perfect fit to past data, it proves nothing about the future. Hence the "theory" (which is an inacurate and unfortunate description as well, because decline of oil fields is a historical fact) is very easy to dismiss. Not only that, it is dismissed by offering examples of where it didn't work, lending credence to the "it never happened before, so it won't happen" argument – which also says nothing about the future.

The ultimate irony to me is that one of the counter arguments to what I call the Energy Predicament (or energy decline if you prefer) is that "the market will take care of it by raising prices." That is exactly one of the warnings that we who are concerned about energy are making. If evidence such as demand elasticity for gasoline is examined, it suggests liquid fuel prices will have to more than double for any significant decrease in use. And the production and consumption statistics speak for themselves.

As a professional speaker, I am giving more and more speeches on "the Energy Predicament." I have labelled it such in part because in North America it is more than just oil – it is also the interrelationship between oil, natural gas, and electricity. And a predicament is "an unpleasantly difficult or complicated situation" – one that few people want to deal with. The Energy Predicament is not good news, and it is a problem which will affect everyone in North America and many around the world. Hence the public does not want to hear it. Presenting the situation as a theory which can easily be shot down is not going to get the message across.

When I ask people "are oil and gas finite?" they answer "Yes." When I follow up with "So when will they run out?" they almost invariably answer "I don't know," which leads to a conversation about how while oil and gas won't run out soon, we are facing the situation where supply will not be able to keep up with demand. And people can understand that.

So rather than trying to evoke a shaky theory from a dead guy, ask people to use their own logic. That's why I agree that "peak oil" is a contaminated brand name.

Natural Gas Supply and LNG

The big question – will it be here in time? Today's Globe and Mail newspaper has a story about Kitimat LNG Inc. winning a provincial environmental assessment certificate for its proposed Liquified Natural Gas terminal on British Columbia's coast.

The terminal will be capable of handling 600 million cubic feet per day of natural gas. Wow! That's a big number. Or is it?

Let's put that number in context. Alberta currently produces 17 billion cubic feet per day, so this terminal could import the equivalent of 3.5% of Alberta's production. The market for natural gas is a continental one, so to put in another context, this terminal's capacity is equivalent to 0.8% of North American consumption of 73 billion cubic feet per day.

North American natural gas production is getting tougher – more and more wells just to produce the same amount of gas: 15,000 new gas wells in Alberta alone in 2004. Old wells are declining. But LNG terminals meet with a lot of opposition from locals. Will LNG be enough, in time?