Recently in Analysis/Theories Category

Norway will play a key role in ensuring that the world's oil and gas supplies remain diversified according to a statement made by the International Energy Agency's chief economist.
IEA's Fatih Birol said, at a conference in Oslo, that expectations from the OPEC to produce an ever increasing share of global oil made every drop of oil from Norway very important in maintaining a diverse energy mixture.
To read the complete article click here.

The International Energy Agency has warned in its global energy outlook that falling oil prices will lead to supply shocks in the future which in turn will give rise to higher prices. This statement, however, failed to have an effect on global oil markets as prices continued to plummet closing at $56.16 US a barrel in New York on Wednesday when this statement was made.
Despite this dismal trend of falling prices, Paris based IEA warned that the current supply and consumption trend was quite unstable and that pretty soon prices would surge back up to more than $200 US a barrel without efforts being made to identify new oil reserves.
The IEA report suggests that a $26 trillion development package is needed to develop new energy sources. However, deteriorating economic conditions may delay these investments.
Existing oil fields are getting depleted at a very fast rate adding to the instability of the world's energy situation. More than half of the world's energy comes from oil fields almost half a century old.
Nobuo Tanaka, the group's executive director gave a simple analogy to illustrate how growing oil demands could not be supported by existing resources. He said that even if oil demand was to remain flat, roughly four times the current capacity of Saudi Arabian fields would need to be built by 2030 just to offset the effect of oilfield decline.
This does not imply that the world will run out of resources. The IEA estimates that there are around 1.3 trillion barrels of proven reserves enough to keep the planet going for 40 years at current consumption rates.  However there's no guarantee that people who own those resources would be willing to exploit them quickly.

To read the complete article by Shaun Polczer on the Calgary Herald website click here.

In various discussions around energy consumption, we often overlook the fact that most production methods involve fresh water, itself a dwindling resource.

A professor and student at Virginia Tech are researching the water efficiency of some of the common methods of generating power. They have analyzed 11 types of energy sources, including coal, fuel ethanol, natural gas and oil, and also five different power generating methods. These methods include hydroelectric, fossil fuel thermoelectric and nuclear.

The research found that the most water efficient energy sources are natural gas and synthetic fuels produced by coal gasification. The least water efficient energy sources are fuel ethanol and biodiesel.

Pic courtesy Grendelkhan on www.flickr.com

The Peak Oil Theory of Value is worth analyzing in the view of recent comments by ExxonMobil's Australian CEO Mark Nolan that there " is no peak oil theory of value."
Beyond something "that possesses us" and "makes us speak its words and do violence to our nature", is the question: What is theory?
A theory is a doctrine, or scheme of things, which terminates in speculation or contemplation. A simple way to understand the concept of a theory is that it is the premise or set of premises upon which an argument rests, although the focus of theory is on the “science” of something, more so than the “art” thereof. 
If a theory is something that is going to possess us, it better be a good theory.

Reporter Mike Sexton from ABC in a conversation with Mark Nolan ExxonMobil came upon the ExxonMobil view regarding peak oil.
He said that while the peak oil theory suggests that at one point the world will have used more than half its oil supply and future demand will be sharply higher than supply, big oil isn't buying it.
Nolan said that these theories have been around since the 1920's, especially when oil hits high prices. The ExxonMobil view is that the world has abundant energy resources and there is no peak oil theory of value.
Mr. Nolan did not expand on his throwaway comment that there is no peak oil theory of value initially. Later he talked about

the US Geological Survey's report that the Earth has more than 3 trillion barrels of conventional recoverable resources and so far we’ve produced 1 trillion of that. An additional 1 trillion barrels are estimated with conservative estimates of heavy oil and shale oil.

While the USGS estimate is notoriously optimistic with lots of good petroleum geologists and engineers taking the USGS to task on it, the focus of this article shall remain on the Exxon man's comment on there being "no Peak Oil theory of value."

So what is a theory of value?
You know what a theory is; Value is the worth of something or its utility to satisfy the needs of people.
A theory of value must be the premise or set of premises upon which an argument rests, relating to the worth of something, or its utility to satisfy the needs of people.
A key question in economic theory is how the value of goods and services comes about, and how to calculate the correct value of goods and services if such a value exists.

The first category in measuring value is called the "intrinsic theory of value". This theory implies that every item has an inherent worth built into the item itself that does not depend on what people think of it. Intrinsic valuations mostly depend on the process of producing an item and the costs involved in that process as a measure of the item’s intrinsic value. The "labor theory of value" which holds that the value of an item comes from the amount of labor spent producing the item, is one of the  most influential of the intrinsic theories.

The second category is the "subjective theory of value". This theory holds that for an object to have economic value, i.e. a price, it must be useful in satisfying human wants and not be in unlimited supply.
Goods that are in unlimited supply, or in a greater supply than that demanded, would have lower value. This theory recognizes that an item may be more useful in satisfying the needs or wants of one person than another, or of no use to one person and of great use to another.
This theory differs from the intrinsic theory in that it holds that beyond the objectively correct value of an object, is the value of individual judgments.

The third category is the "cost-of-production theory of value". The theory is that the price of an object is determined by the sum of the cost of the resources that went into making it. Factors such as labor, capital, land or technology will all come under cost of production.

Now that we have the basics, it's back to the Peak Oil Theory of Value. The central argument of Peak Oil is a scientifically valid concept that relies on historical "discovery" numbers and extraction figures for conventional petroleum.
Extraction figures implies that you cannot extract what you have not discovered and peak oil says that mankind has found most of the world's oil deposits. And it appears that mankind has extracted about half of all the conventional oil that will ever be extracted. This is the basic premise.

Peak oil refers to conventional petroleum as the substance that will be available in lower and lower quantities. Conventional petroleum is the rock oil that is made to flow from pores in rock formations into bore holes in the ground and lifted from there to the surface of the Earth.
The world’s exploration, production, transportation, refining, marketing, delivery and end use is geared by conventional petroleum.
The world's extraction and use is currently at 85 million barrels per day.

As a departure from conventional petroleum are tar sands and oil shale, that require different methodologies not only to extract or produce, but also for transportation, refining and delivery. The infrastructure in the world for plumbing for these is negligible. Besides, non-conventional hydrocarbon sources have a far more negative economy in both energy return on investment and monetary metrics.

The question for the future is whether the world's energy sectors and the economies they drive can make the transition from extracting, refining and delivering conventional petroleum to delivering non-conventional petroleum. And additionally, if the transition can happen... will it happen faster than conventional sources are depleting?

Coming back to the peak oil theory of value begs the question - what is it worth to be able to understand if not predict that the world's capacity to extract conventional petroleum is on a downhill run? What is it worth to be forewarned?

If we're headed for a cold, bleak future, isn't it best to look at the peak oil theory of value as a caution toward the future trends of mankind's energy use and particularly mankind's oil use.

Is the value of peak oil intrinsic or subjective? Is it based on the cost of production? Or is it quite simply that understanding of Peak Oil is a key to mankind understanding how to survive into the future. That seems like a perfectly useful “theory of value.”

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