Big Bang of Wrongness?

Folks are still having fun with Glenn Reynolds’ “Let’s invade Saudi Arabia and Iran and steal their oil” post. Sean Carroll reckons that the wrongness might be enough to form a singularity. But that can’t be right, because the wrongness has escaped to form this post by Lubos Motl:

Prices would plummet

Sean thinks that they won’t plummet because the oil fields are essentially running at full capacity. Sean has a naive idea about the driving forces behind these prices. In 2002, the oil price was $18 instead of $70. Does it mean that the oil fields were running at a much-higher-than-full capacity?

The oil price is a very volatile quantity that sensitively responds to many different factors. The consumers are ready to pay higher prices because they feel that oil is something valuable that can cease to be available tomorrow. OPEC’s statements have a dramatic impact on the price. If there were real competition, the prices could drop. Of course, the conflicts started by September 2001 did not really move the oil industry in this right direction.

Study this graph of the oil productions and prices. (Stolen from this thread at The Oil Drum.)

i-dd36d62632708de8b568548335d4d839-127847949_f76e703997.jpg

All right, suppose you wanted to get the oil producers to produce as much oil as possible. One method, known to work much more effectively than invading and stealing it, is to offer lots of money for it. That’s what’s been happening, as the graph shows. As the price has gone up, more and more oil has been produced. Except that production has leveled off recently, which indicates that everyone is pumping oil at full capacity to take advantage of those sweet $70 a barrel prices.

The reason why oil was $18 in 2002 was that there was less demand so there was real competition and the oil producers were prepared to cut each others throats to sell their oil. Consumers are not stocking up on oil because they think it won’t be available tomorrow. Production may well have peaked, but that doesn’t mean that it will run out tomorrow — it just means that there will be long gradual decline in production. OPEC’s statements don’t make much difference to the price. OPEC’s actions might, but they are pumping as much oil as they can.

What’s interesting is that one wrong statement on Reynolds’ blog has expanded into much more wrongness at Motl’s. I think some sort of wrongness inflation theory is needed.

Motl continues with more of the same, culminating in this:

I think it is obvious that even if a fuller control by U.S. capitalism led to a smaller influence of dictators, lower prices, and stronger growth of the economies, especially the poor ones, the U.S. would be blamed as an imperialist oppressor. Even Sean Carroll agrees that it is the case. But he disagrees that it would be inappropriate to blame the U.S. for such changes. Well, if the governments and political systems impose things such as affirmative action, stifling political correctness, nationalization of corporations, huge redistribution plans, far left-wing blogs offer their support. If someone thinks about government plans that would actually make things better, not worse, and cheaper, not more expensive, far left-wing bloggers complain about imperialist oppression.

Stealing the Saudis’ oil would seem to be a pretty darned huge redistribution plan and it would make things worse. You’d think that right-wing bloggers would be in favour of free markets and buying it from the Saudis. Unless they really are imperialists.

(And is it me or is Motl’s blog design the ugliest you have seen in a long time?)

Comments

  1. #1 fp
    May 7, 2006

    >is Motl’s blog design the ugliest you have seen in a long time

    At least Lubos’ blog does not have the annoying pop-up/fly-over ads of your blog …

  2. #2 Tim Lambert
    May 7, 2006

    Touche.

  3. #3 DarkSyde
    May 7, 2006

    Lubos really ought to lay off of economics. He’s made quite a name for himself getting climate change dead wrong. But in point of fact, the price of oil skyrocketed in the 1970s and yet, strangely, production in Texas declined. I guess those dumb old Texans just couldn’t understand they’d make way more if they pumped more …

  4. #4 CD318
    May 7, 2006

    He has to get some things wrong. After all, his professional work is not even wrong. ;-)

  5. #5 Peter Hollo
    May 7, 2006

    Pop-up/flyover ads? I had no idea (honestly!)
    Could it be because… I’m using Firefox?! ;)

  6. #6 Bill O'Slatter
    May 7, 2006

    “The reason why oil was $18 in 2002 was that there was less demand so there was real competition and the oil producers were prepared to cut each others throats to sell their oil.” You don’t have to have putative motives for the oil producers behaviour. They sell it at a price the market will buy it at. There is no market failure at present i.e. there are a sufficient number of sellers and buyers to ensure that a functioning market exists. This may not be true in the future.

  7. #7 Reader
    May 7, 2006

    I also think that Motl’s blog is brilliant and the design is strikingly beautiful and irresistable. I am afraid to reveal my identity because everyone would count me as a reactionary bastard.

  8. #8 Reader
    May 7, 2006

    Wow, that’s cool. I also did not know which flying popup ads were mentioned. Now I see it: the Mega Disaster ad on the right produces smoke all over the screen. Very nice!

  9. #9 Tim Lambert
    May 7, 2006

    I suppose if the sock puppet is that obvious, it doesn’t count as deception…

  10. #10 Reader
    May 7, 2006

    Well, I don’t care whether Motl is accused of having sock puppets heheh. Your acts are rather predictable, Tim.

  11. #11 Tim Lambert
    May 8, 2006

    Whatev, Lubos. But seriously, are you colour blind?

  12. #12 Harald Korneliussen
    May 8, 2006

    typo:
    “That’s what’s being happening” [thanks. Tim]

  13. #13 Pinko Punko
    May 8, 2006

    He has worse colors than we do. I wonder who the most intelligent and educated person that links to Tech Central Station in an approving way is? I mean who actually believes that crap?

  14. #14 Ian Gould
    May 8, 2006

    “Pop-up/flyover ads? I had no idea (honestly!) Could it be because… I’m using Firefox?! ;)”

    To quote oen of my favorite blogs – sadly, no.

  15. #15 Hans Gruber
    May 8, 2006

    “Production may well have peaked, but that doesn’t mean that it will run out tomorrow — it just means that there will be long gradual decline in production.”

    Maybe you’re on to something with that “inflationary wrongness” theory.

  16. #16 Jack Lacton
    May 8, 2006

    The current price spike was initiated by the Iraq conflict, as there was a threat to world supply. Following on from that the Iranians chose to destabilise things with their insane babble about nuclear energy not weapons, and, more recently, the lunatics in South America have all but nationalised their energy industries. This has not made one skerick of difference to actual oil reserves, of course, but has had a marked effect on the collective oil psyche, which has pushed prices up.

  17. #17 Ian Gould
    May 8, 2006

    Jack Lacton: “their insane babble about nuclear energy not weapons”

    It’s an interesting illustration of the phenomenon of cognitive dissonance to see the same people insisting that:

    a. nuclear power is the logical replacement for fossil fuels; and

    b. there’s no justification for Iranians developing nuclear power because THEY’VE GOT FOSSIL FUEL RESERVES.

    It’s also intertesting to hear the governments of South American oil exporters denounced as “lunatics” for taking actions that increase the price of oil. (Obviously if they were rational they’d be bidding against each other for the privilege of supplyign the US for free.)

  18. #18 Mark Shapiro
    May 8, 2006

    Tim -

    Thanks for shining a spotlight on the “steal the oil” insanity. It makes it worth returning to your site in spite of the awful pop-up flyover add, which mucks up my CPU. (Please don’t do that anymore.)

    Good energy policy promotes efficiency, simple conservation, and renewables. Reducing fossil fuel consumption reduces all their costs and risks – economic, environmental, and political.

    The latest example: Iran. As we lower our demand for oil and gas and thus lower the price, Iran has less money to play with nuclear power and more worthless gas to generate cheap electricity. It is a US security and economy trifecta.

  19. #19 pierremenard
    May 8, 2006

    Interesting post, but there is still one part of it that I feel needs further substantiationg: that change in demand is responsible for the 3-fold increase in price between 1999 and today. Some questions: how much did demand actually change between these two dates? What do economic models predict about the effect of such a change in demand (i.e. how much would it raise the price by)? How does this compare with what actually happened? More importantly, why did demand change so much over that time period? It has certainly outpaced world population and GDP growth.

  20. #20 Eli Rabett
    May 8, 2006

    I rather like the tornado flyover, but I wish we could have a cyclone one, and a waterspout and a thunderstorm. Oh yeah, the mega DDT spray. Cool AND it cures maleria.

  21. #21 z
    May 8, 2006

    I don’t have ads popping up and flying over, and I’m just using IE without blockers, etc. on this box. Sometimes the ad gets active, but it always stays within its appointed space.

  22. #22 David Heidelberg
    May 9, 2006

    Speaking of adds, that insufferable whinger, JF Beck, is accusing you of being a capitalist bastard, Tim.

  23. #23 Jack Lacton
    May 9, 2006

    Hi Ian,

    I didn’t make a connection that nuclear energy is the logic replacement for fossil fuels – you did. In point of fact, the replacement options are quite limited and such hopeless ideas as wind farms simply won’t cut it in a world where energy demands are rising so quickly.

    Have you read any of the literature relating to Iran’s nuclear weapons program at all? If so then you would probably be more sober in your statements that seem to be supportive of their peaceful right to nuclear energy.

    I certainly wouldn’t suggest that anyone that forces a price for their product up is a lunatic. My use of the term relates to the rise of individuals that think that state control of industry is somehow going to benefit the people.

    Cheers
    John

  24. #24 z
    May 9, 2006

    “such hopeless ideas as wind farms simply won’t cut it in a world where energy demands are rising so quickly.”

    How long does it take to design and build a nuclear reactor?

  25. #25 z
    May 9, 2006

    The supposed economic advantages of nuclear power are not as clear as they are made out to be.

    “Worldwide,the majority of current nuclear power plants are competitive on a marginal generating cost basis in a deregulated market environment because of low operating costs and the fact that many are already fully depreciated.

    “However,new nuclear power at generating costs between 3.9 and 8.0 c/kWh

    “pebble bed modular reactor … expected cost of power would be approximately 2 c/kWh including the full fuel cycle and decommissioning (Nicholls, 1998). These costs are far less than typical present nuclear technologies and in part perhaps the result of engineering optimism. Other assessments quote double this generating cost (WEA, 2000).

    “In high-wind areas, wind power is competitive with other forms of electricity generation at between 3 and 5 c/kWh. The global average price is expected to drop to 2.7-3 c/kWh by around 2020 due to economies of scale from mass
    production and improved turbine designs. … However, on poorer sites of around 5 m/s mean annual wind speed, the generating costs would remain high at around 10-12 c/kWh

    “Biomass fuels … high-pressure, direct gasification combined-cycle plant … by 2020, with operating costs, including fuel supply, declining from 3.98 to 3.12 c/kWh (EPRI/DOE, 1997). By way of comparison, the higher current operating costs of 5.50 c/kWh for traditional combustion boiler/steam turbine technology, (reflecting poorer fuel conversion efficiency compared with gasification), were predicted to lower to 3.87 c/kWh.

    “The cost of PV [photovoltaics] … is slowly falling due to manufacturing scale-up and mass production techniques as more capacity is installed. Generating costs are relatively high at 20-40 c/kWh. However, PV is often deployed at the point of electricity use such as buildings, and this can offset the high costs by giving a competitive advantage over power transmitted long distances from central power stations with high losses and distribution costs.”
    “Carbon emission and mitigation cost comparisons between fossil fuel, nuclear and renewable energy resources for electricity generation”; Ralph E.H. Sims, Hans-Holger Rogner, Ken Gregory; Energy Policy 31 (2003) 1315-1326 http://www.iaea.org/OurWork/ST/NE/Pess/assets/Energy%20Policy%202003.pdf

  26. #26 Mark Shapiro
    May 9, 2006

    And just in case there are any conservatives out there yearning for nuclear power, what is it about a form of electricity that requires big, centralized government, bureaucracy, and regulation, and $ billions in subsidies to boot, that a conservative could possibly like? And one that requires either peaceful international cooperation or bombing sorties to control internationally?

    For those who really like nukes, two words: I ran.

    z has some of the good news (posted above) on the growing cost effectiveness of renewables, and that didn’t even include efficiency and simple conservation.

    Nukes? No thanks.

  27. #27 Ian Gould
    May 10, 2006

    “Have you read any of the literature relating to Iran’s nuclear weapons program at all? If so then you would probably be more sober in your statements that seem to be supportive of their peaceful right to nuclear energy.”

    I’d say its more accurate to say that i’m sanguine about their inability to move rapidly from the 150-odd centrifuges and lab-scale production of uranium hexaflouride they’ve apparently mastered in producing a few grams of 3% enriched uranium (assuming they’re telling the truth for once) to the 10,000+ centrifuges and industrial scale uranium hexaflouride production required for bomb production.

    That’s especially true seeing as all that construction (probably alos involving a multi-megawatt powerplant to pwoer the centrifgues) would need to be done underground.

    I also take note of the fact that Iran has had chemical weaposn since at least the 1980′s and hasn’t shown any great eagerness to pss them to terrorists.

    Finally, the threat of massive nuclear retaliation deterred Mao and Stalin and is currently deterring Kim Jong-Il. I see no reason to assume that it won;t work on the Iranians assuming they ever do actually manage to build a bomb.

    The oil and gas industries appear to be one of the few in which state ownership isn’t necessarily a recipe for disaster – just look at Saudi Arabia and Kuwait.

  28. #28 AndyD
    May 10, 2006

    z – I have to note that your costs for wind don’t include backup costs, which makes any comparison irrelevent, and in the same way those for biomass dont’ bother with the effects of scaling (i.e either you reduce food production or turn even more of the environment over to monoculture).

    The result of several decades of determined anti-nuclear propaganda can be seen here:

    http://www.ldeo.columbia.edu/~martins/irvine/ms/sld028.htm

    Although it’s fine to talk about things like coal gasification and CO2 sequesteration, in reality the new fleet of coal plants under construction worldwide do not employ them. Coal plants which will, of course, emit radioactive waste in quantities that would force the immediate closure of a nuclear plant.

    Mark – You will note that current renewables require large subsidies, both directly and indirectly, since only by turning other generating plant on and off according to how the wind blows can wind even be integrated into the grid. For the record, I am not a conservative; but I do wonder how you think that 9 billion people can live on this planet with a western lifestyle without both nuclear power and fossil fuels. Telling people in the third word that they are not allowed to develop is an extremely conservative position; advocating policies that have the real world effect of increasing AGW – thereby sacrificing large numbers of third worlders to the real risk of global warming to protect yourself from a minute risk of a nuclear accident – could be construed as racist.

    I don’t actually think you are either conservative or racist – merely living under the delusion that renewables are capable of powering our current lifestyle, and/or voters in industrial countries are going to vote themselves a worse standard of living. But the effect of that delusion can be seen everywhere from the Artic ice sheet to Iraq.

  29. #29 z
    May 10, 2006

    “but I do wonder how you think that 9 billion people can live on this planet with a western lifestyle without both nuclear power and fossil fuels.”

    Bingo. As I said elsewhere, it was fun while it lasted, but now it’s time to get to work.

  30. #30 z
    May 10, 2006

    “z – I have to note that your costs for wind don’t include backup costs, which makes any comparison irrelevent, and in the same way those for biomass dont’ bother with the effects of scaling (i.e either you reduce food production or turn even more of the environment over to monoculture).”

    Are you under the misapprehension that nuclear power plants run 24/7? Overall downtime runs about 12% in the US now.
    “Sun, Jun 19, 2005
    Electric bills rise during nuclear plant downtime
    By Jonathan Gneiser
    Central Wisconsin Sunday
    Residents throughout central Wisconsin can expect higher than normal electric bills primarily due to about a four-month outage at the Kewaunee Nuclear Power Plant.
    Baseload power plants like Kewaunee, which is owned by Wisconsin Public Service Corporation and Alliant Energy, are the least expensive way of generating power, said Al Herrman, manager of wholesale services for WPSC.
    The plant, which was shut down for scheduled maintenance, is awaiting the completion of safety inspections and repairs before it can be restarted, said John Christensen, account executive for WPSC wholesale services.”
    http://www.wisinfo.com/newsherald/mnhlocal/285238827827844.shtml
    I can’t think of any place where the wind doesn’t blow for 4 months at a time. I can think of some places where I’ve never seen the wind not blow.

  31. #31 z
    May 10, 2006

    “z – I have to note that your costs for wind don’t include backup costs, which makes any comparison irrelevent, and in the same way those for biomass dont’ bother with the effects of scaling (i.e either you reduce food production or turn even more of the environment over to monoculture).”

    I got so excited over my own brilliance I forgot the second part of my post.

    Yes indeed; I saw a calculation somebody did the other month, and if we were to run all the US vehicular traffic on biodiesel, we’d have to demolish the remaining Amazon rainforest and convert it all to palm oil production; nothing else could provide enough fuel, including burning all our used cooking oil. And that’s just vehicles, not industrial fuel and electricity.

    Back to my theme of the week: the good times are gone.

  32. #32 Mark Shapiro
    May 10, 2006

    AndyD – what z said. Wind power is indeed intermittent but more predictable all the time and can be added to grids with little or no backup (see http://www.awea.org or GE Power) . Plus every grid has a portfolio of generators and constantly changing load. Integrating wind takes intelligence and engineering, and real time pricing might help most of all.

    (Yes, all forms of energy are subsidized. Worse still, consumption in general is subsidized. Nuclear is probably most highly subsidized. Unfortunately, the technical political term for trying to end subsidies is “suicide”.) The goal is to improve renewables like wind and solar so that they will be deployed wordwide on cost basis alone.

    Overall, your objections to renewables are the main reason why energy efficiency and simple conservation top the list. If you want 9 billion people to have anything like first world standards of living, they are absolutely necessary.

  33. #33 Dano
    May 10, 2006

    Mr Shapiro’s and genderless z’s assertions are correct:

    In a world of 9B people, we can’t afford to be using land needed for growing food as fuel-making dirt. There won’t be enough room nor enough earth to absorb the waste for this folly.

    Best,

    D

  34. #34 Kristjan Wager
    May 11, 2006

    Why worry about the downtime of the energy generators, when a more likely point of failure is the power grids, that are in much need of repairs, replacements and expansions before the currently produced power can be transported to the consumers?

  35. #35 AndyD
    May 16, 2006

    Mark -

    Sorry about the late reply..

    Saying there is a portfolio of generators is basically my point; turning off one power plant to allow for wind makes little economic sense since it incurs costs in itself. The latest NG fired plants (Combined cycle) are highly inefficient when run intermittantly.

    The reason why small amounts of wind are OK is because electric grids are designed to cope with variations in load and generator outages to some degree; however, this places an upper bound on the contribution of intermittant sources. Remember that you can’t turn an intermittant source on.. which is why they should be costed with their own backup. Until that is done they cannot be considered major contributors.

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