Thursday, May 28, 2009

Bright Lights, Peak Oil

Hat tip to Aaron Edelheit (with a second assist to Paul Kedrosky) for this article by Chris Turner in the Walrus magazine (which looks like a Canadian version of the Atlantic magazine before the Atlantic's recent, garish redesign): "An Inconvenient Talk: Dave Hughes's guide to the end of the fossil fuel age".

From this article, Dave Hughes, a geologist/doomsayer, appears to be Canada's answer to Matt Simmons. For some reason (perhaps in tribute to the upcoming 25th anniversary of Jay McInerney's novel Bright Lights, Big City) Chris Turner refers to himself in this article in the second person. Here's a taste:

Dave had to start out fifteen minutes earlier than the requisite ungodly hour so he could pick you up at your house. So you wouldn’t drive yourself. Save a few hydrocarbons, he’d joked. He’s a coal man, a geologist, and he always refers to the holy trinity of fossil fuels whose flames have stoked the past 200 years of industrial growth — coal, natural gas, and especially oil — in that same semi-technical way: hydrocarbons. Dave Hughes has a lot to say about hydrocarbons, mainly how there’s no possible way to keep running the engine of a modern global economy for much longer at the pace we’re burning them. Which is why you felt compelled to join him in the black chill of this late-autumn morning. Because that seems like a pretty big deal.

The uninspired photo above of Dave Hughes (that's the best backdrop they could come up with in Calgary and its environs?) accompanies the article and is credited to "Wilkosz + Way".


Barney Frank said...

Harness the energy generated by Richard Simmons' "Sweating to the Oldies" if you want a renewable energy source we can count on.

Lorne David Porayko said...

Jeff Rubin (the former CIBC Chief Economist) is in the same camp as this fellow.

I suppose I remain somewhat agnostic on peak oil/energy.

We've been hearing the same story and looking at the same graphs and hearing from similar erudite experts since the 70's. Eventually, of course, they will be right-- like any bear.

"The Stone Age didn't end because they ran out of stone"

The tricky part is the timing.

DaveinHackensack said...


That would be an expensive source of energy, according to Dave Hughes:

As he drives, Dave indulges in a little academic exercise. He’s comfortable with numbers, quick with calculations. A barrel of oil, he tells you, contains about six gigajoules of energy. That’s six billion joules. Put your average healthy Albertan on a treadmill and wire it to a generator, and in an hour the guy could produce about 100 watts of energy. That’s 360,000 joules. Pay the guy the provincial minimum wage, give him breaks and weekends and statutory holidays off, and it would take 8.6 years for him to produce one barrel of oil equivalent (boe, the standard unit of measure in hydrocarbon circles). And you’d owe him $138,363 in wages. That, Dave tells you, is what a barrel of oil is worth.

DaveinHackensack said...


"We've been hearing the same story and looking at the same graphs and hearing from similar erudite experts since the 70's."The FT had a good Lex column making this point at the beginning of 2008, Peak No Evil.

The graph that accompanied the print version of the column (but unfortunately doesn't accompany the online version) was worth a thousand words. It showed that, despite the consumption of oil over the last few decades, and the increased estimates of the rate of future consumption, we still had about the same estimated years worth of production left. The difference was that greater technology dramatically increased the amount of oil we could access.

I'm not convinced that the world is running out of oil anytime soon, but I do think we'll see new record oil prices within the next several years.

Lorne David Porayko said...

I agree with you. Political interference-- well meaning or not-- will probably just compound the problem. The question is how do you invest in this phenomenon?

Do you buy oil futures ETFs and risk contango erosion effects?

Do you buy oil/gas industry companies and risk being in the political crosshairs? i.e. the corporations may not necessarily profit from rising oil prices like they have in the past if their margins are squeezed disproportionately

Or do you do like Buffett and buy a secondary industry that will profit from generally expensive energy i.e. the railroads BNI, UNP

DaveinHackensack said...

I like oil companies and royalty trusts better than oil futures. One way to minimize political risk, I think, is to buy small E&P companies with resources in politically stable areas. Another (although I haven't done this) might be to buy shares of partly state-owned companies, so at least you are on the same side of the table, proverbially, as the governments that control the resources.