MMM interviews ERE on Peak Oil

An aerial photo of Canada’s tar sand oil projects by Pipeline Walker/writer Ken Ilgunas (click for his website)

One of the questions that comes up in the face of Mr. Money Mustache’s unrelenting optimism about the state of the world is, “Will human prosperity continue even as we run out of the cheap fossil fuel energy that has powered us for the last 200 years or so?”.

In a nutshell, I always say: “It’s not just cheap oil that is the primary source of our wealth these days, it’s the cheap exchange of knowledge.” On top of this, I think the world economy is innovative enough that it will be able to adapt to the inevitable increase in oil prices as our supply gets squeezed, by replacing that energy with other sources.

To balance my own optimism, I asked for the opinion of someone with ideal qualifications to shoot me down: Jacob Fisker, founder of the blog earlyretirementextreme.com has done academic research and writing on the phenomenon of Peak Oil, as well as pretty much everything else. Since putting that blog on pause, he has retired from early retirement to do some work in the area of quantitative financial analysis. And he holds a pessimistic view of the future of humanity’s current high-consumption approach to prosperity.


MMM: From my understanding of peak oil so far, it looks like the problem in a nutshell is that the world has 1.2 trillion barrels (1200Gb) of known oil reserves at best, and we are using about 85 million barrels a day. This works out to less than 40 years of known supply at current consumption. However, production towards the end of known reserves tends to decline, which means we’ll have decreasing supply even as demand tries to increase. Is this still up-to-date knowledge?

ERE: A lot of confusion comes from the exact definition of the word “reserve”. The problem is that reserves are underground where it’s impossible to look and verify directly how much is actually there. Therefore reserves have to be estimated. Think about how you would go about doing that. Say you want to estimate how much money I have in my wallet (it’s not a lot, because I rarely need to spend cash). Say your first guess is $12. I then ask you what probability you assign to it, and you give a more accurate answer: “I think there’s a 50% probability that you have $12 or more.” This is called a P50 estimate of my money. I then ask you what your P90 estimate is. That is, if you had to estimate it with 90% probability of being right, what would your estimate then be. Probably lower, maybe $3. So your P50 estimate is $12 and your P90 estimate is $3.

Now, if you were a scientist or a petroleum engineer, you’d give your estimates as P50 estimates because if you had to estimate a lot of different people’s wallets, your average would be correct (on average). Half the times you’d estimate too high and half the times you’d be wrong. In effect, your P50 estimate would probably be the correct average.

On the other hand, if you were an accountant or a money lender trying to figure out if I was actually able to pay you back if you lent me some money, you’d prefer a more conservative estimate, the P90 estimate. If you had to estimate a lot of different people’s wallets using the P90 estimate, you’d tend to underestimate the correct total sum be a significant degree.

Now suppose you just P90-estimated my wallet to worth $3.—But then you see me take $5 out of my wallet. OMGWTFBBQ what just happened? Well, apparently it turned out that I actually had more than $3 in my wallet. So while your P50 estimate of $12 is still correct (as far as you know), your P90 estimate was clearly wrong, so you update your P90 estimate: “Well, he just spent $5, so he probably has a bit more yet in that wallet. On the other hand, I have no reason to believe that my original P50 estimate of $12 was wrong. So I’m updating my P90 estimate to $10.”

Now it so happen that different people use different estimates and yet talk about them as if they where the same thing. For instance, a businessman would say that my “reserves” just increased by $2. That is, the new $10 minus the $5 I spent relative to the original $3. In particular the businessman would say I just discovered $2. The scientist would say: “Hey, the $2 didn’t magically appear out of nowhere. It’s just that your original P90 estimate was too pessimistic and you’re just revising your numbers”.

Hence, there are two ways of interpreting this:
1) The businessman would say that first it was virtually proven (with 90% probability) that I had $3. Then later it was proven that I found $2 more. So everything is good since I keep finding money.
2) The engineer would say that I most likely will turn out to have $12.

The entire peak oil debate boils down to this.

The US Securities and Exchange commission (SEC) mandates the reporting as P90. This has lead to so-called reserve growth. If you draw a curve it’ll look as if the oil business is honky-dory and they keep finding new oil. The confusion comes about because they actually do discover new fields from time to time. However, this contribution is trivial compared to the updating of old numbers. The wallet analogy is that while they’re finding small wallets from time to time with a few cents in them (estimated by P50), the P90 growth comes from revising old numbers. It doesn’t help that new oil finds are presented in he media as being huge, like “Scientists estimate as much as 100 billion barrels under the north pole!”. That sounds like a lot and in today’s prices, it’s 10,000 billion dollars which is enough to pay off the half the US national debt. That’s a lot of money. However, it’s not a lot of oil; it’s only a few years of use.

So if you ask the oil companies, they’ll point you to a P90 reserve graph and tell you that because reserves are growing it’s safe to invest with them, because, hey, reserves are growing steadily.

However, this is just accounting trickery. If you ask the engineer that, as long as he knows I’m not putting money into it, then going from a P90 of $3 to a P90 of $10 doesn’t mean I found a new wallet worth $7. It means that my old wallet was bigger than estimated. I may still find a new wallets in the future, but P90 updates should not count as new discoveries. Only actual discoveries should count as discoveries.

If you draw a reserve growth map back-dating, what you could call “accounting discoveries” to their original wallets or oil fields as it may be, you’ll find that the actual real-world discovery rate peaked in the 1960s. Since then we’ve been finding less and less oil. This points asymptotically to a total global oil endowment around 2000-2500 billion barrels in the world. Out of those we have used about half which leaves a P50 estimate of around 1200 billion barrels left.

The world is using some 25 billion barrels per year (the US with a population of 320 millions uses about a quarter of this. Europe with a population of around 600 millions uses another quarter. And the other 6000 million people on the planet uses the other half.).

Naively, you could take 1200Gb as reserves and divide the current rate of use (25Gb/year) and you get about four

decades. However, while the math works like that with a wallet, it doesn’t work that way in an oil field. In reality the extraction rate for a newly developed oil field will rise. Then it will peak, and then it will decay exponentially at a rate of some 3-5% per year.

Just like cash flow (not assets) determines the solvency of a company, the extraction rate (not the total P50 reserves) is what’s important to the economy, since that’s the rate it actually becomes available for use. If you add the total extraction rate from the fields of the entire world you will due to the mathematics of it (central limit theorem for the math geeks) get an extraction rate that’s the shape of a bell curve. The peak of that curve is called peak oil.

At that peak geological limitations dictate that oil production can not be increased. It does not matter how many checks economists write. There is no way to increase supply. Since it’s supply-constrained energy prices go up. This sends a signal to the economy to demand less. If, then, prices go down again and use goes up, the prices shoot up again. This happens faster and faster as supply declines and shocks are sent through the economy. This is what we’re currently witnessing.

Fun fact: If you ask OPEC whose production (and thus income) is decided by the relative size of their respective reserves, you’ll see they don’t update them at all even as oil is pumped out and nothing new is found—one would expect reserves to decline, but they don’t.

1: Other Sources of Fossil Fuels

MMM: Do numbers like those above include natural gas reserves? Here in the US, we have seen enormous natural gas discoveries in the last decade, and it has caused gas to become extremely cheap even as crude oil and gasoline are pricier than they were 10 years ago. What do you make of articles like this one in the New York Times?
The US has over 300 trillion cubic meters (500 billion barrels of oil equivalent) of natural gas on the books these days. That is close to half of the entire world’s crude oil reserves, just in one country and it is in addition to the oil. And the coal. Both natural gas and coal are pretty solid substitutes for liquid oil for transportation (except jet fuel, but even that can be refined from coal). Am I understanding this correctly or exaggerating?

ERE: The numbers above (1200Gb) only include conventional oil. Here “conventional” means easy to get as in drill a hole in the ground or shallow waters and pump it out. I think it’s important to consider the concept of “energy-returned-on-energy-invested” or EROEI. This is how much fuel energy one gets back from putting in energy to get the fuel. The following analogy might help: “Imagine that you get your food from supermarkets which are all underground. To get food you have to throw a rope down with a bucket and haul the food up. Without loss of generality, we can assume that a bucket full of food is worth 10000 kcal. If it requires 4000kcal of effort to haul a bucket up, you’re good because you can eat 4000kcal of food from the bucket and have 6000kcal left which you can sell or share. Suppose the underground supermarket runs out. You then have to find a deeper one which takes 7000kcal to haul out. That’s okay you still make 3000kcal on net. Once that runs out, you go still deeper. The new depth costs 9000kcal worth of effort. You now only get 1000kcal. You’re 6 times poorer than you used to be for the same effort. Once that runs out and the next supermarket costs 11000kcal to haul out… well, you’re done. You might as well not bother because now you’re running a deficit and you’ll eventually die of starvation if you continue. Hence it’s important to consider EROEI. It MUST be higher than 1 and the higher it is, the richer a society which runs on that energy source is because it needs to dedicate less effort to to getting its energy supply and can do other things.

Oil has the highest EROEI of all known energy sources. Higher than nuclear, wind, solar, water, and unconventional fossil fuels.

Recently there has been a boom in US natural gas from fracking shale (a kind of underground tar). This has led to a large drop in natural gas prices because the increase in supply was so unexpected and there are nowhere to store the excess. Since this has happened in that last couple of years I don’t know for a fact whether industry and government agency (those two are practically the same thing) estimates are overly optimistic as usual (there are some reports that production is peaking already) or whether supply can keep up with demand.

Thus US has LARGE reserves of coal. All fossil foils have the problem of contributing to climate change leaving the world for future generations in a worse place than we received it. In that sense, coal is much worse than gas, so hopefully shale gas can provide some short relief while politicians, voters, consumers, and corporations suddenly transition to a focus long-term thinking. Okay, I’m joking. Like that’ll ever happen. We do see organizations, like the military, who is not subject to constraints like getting re-elected or not getting booted by the board after failing the next quarterly earnings adopting perspectives that are somewhat longer and ordering new ships that run on natural gas.

In any case, oil is much superior to gas and coal in terms of how useful it is. There’s a reason that you’re not pouring coal into the tank when you go to refuel your car. There’s a reason why eletric cars are hybrid (with an oil based engine). There’s a reason that Germany and Japan lost WWII (they didn’t have access to oil and had to ultimately had synthesize their own out of wood and coal while the allies did have access to oil). Converting coal or gas into gasoline via the Fischer-Tropsch process is mature technology but it’s not as good as the real thing. It’s more expensive. In summary, the combination of oil and internal combustion engine provides the cheapest and highest power to weight ratio of any engine and fuel combination.

2: Using Energy More Efficiently

MMM: When I analyze businesses, households and small factories around me, I find that they have paid very little attention to energy consumption. Because the energy is so cheap as a percentage of sales, and engineering knowledge is sparse, most of them have made decisions that cause them to waste great amounts of energy (and great sums of potential profit). The only businesses I have seen that take energy use seriously are the largest ones which operate on thin margins, run by optimization-minded people: Wal-mart, FedEx/UPS, and the airlines. And the only consumers who do so are a few of the most dedicated readers of ERE and MMM :-)

Given a change in energy prices and an increase in awareness, do you feel we could make major gains in energy consumption relative to GDP (say, 50%?), with minimal change in our actual quality of life or level of output?

ERE: This is because energy is still relatively cheap compared to how much we get out of it, even at $5/gallon. However, we have already seen some changes in attitude in the younger generations. Owning a car is no longer seen as nearly as desirable by Millenials as it is by older generations where getting your first car was almost a rite of passage. Some even see owning an SUV or a large truck as slightly silly or old-fashioned. The cities are getting repopulated. Urbanism is on the rise. Suburbanism is on the decline. Who is going to buy a poorly insulated 3000sqft house 20 miles away when gasoline is $5/gal and heating is several hundred dollars per month; money which only people who have high salaries can afford—and that grudgingly.

So people are definitely open to change. They’re not set in their ways. Ten years ago when I first became aware of this problem the consensus thinking was that people were completely inflexible when it came to their energy use.—That they’d prefer to engage in a Mad Max scenario rather than make some strategic choices in terms of where to live, what to live in, and how to get around. This is why I began to learn how to live a low-energy lifestyle in 2000. I found that the self-reliance from saying no to consumerism and doing things yourself was much more fun than buying new stuff and putting it in the attic a few months later. I also found that it allowed me to save a lot of money. “The more you know, the less you need to spend”. Because all spending is in some way a compensation for ignorance or skills or an indication of how vulnerable one is to the economy. I wanted to reduce my vulnerability to the economy as much as possible. The nice side-effect was that I saved a ton of money and now I’m much wealthier than the median consumer (although not as wealthy as MMM). Because of this lack of vulnerability, the credit crises also barely registered. I mean I read about it in the news and I was able to buy even more investments but it didn’t affect our lifestyle at all.

Because of that I no longer worry about peak oil or peak energy. I would say, though, that people are going to experience it in different ways. People who adopt MMM or ERE lifestyles are probably only going to experience it indirectly through the laments of other people. Those who don’t prepare at all, rely entirely on pulling out their credit card and buying their way out of all their problems are likely to crash hard when gasoline prices cross $10/gal. I say this with a P90 probability.

3: Renewable Energy Can Be Big

MMM: I often hear criticisms of alternative energy (especially solar and wind) as being insufficient to power the future world. But when I calculate the area of solar panels required to meet my own total energy needs, or the entire world’s, it works out to a fairly feasible land area. This Wikipedia picture makes this dramatic point visually: http://en.wikipedia.org/wiki/File:Solar_land_area.png — covering land the size of those dots little black dots with solar panels would meet the world’s energy needs completely.

And this is with only solar power. If we leave our other power sources in the mix , it seems like we have a pretty robust network of energy with several alternatives.

Some say “yeah, but it takes energy to MAKE the solar panels”. But a well-placed solar panel can pay back its encapsulated energy within a year even with today’s technology. Way back in 2006 before the recent solar manufacturing boom, the estimated range was 0.7 – 4 years: http://www.energybulletin.net/stories/2006-06-16/energy-payback-roof-mounted-photovoltaic-cells

And manufacturing efficiency can surely grow (since energy is cheap right now, saving energy is not high on the list of solar panel producers).

So it seems that the world’s energy budget for producing solar panels need only be (at maximum) a single year’s worth of energy production. And what’s more, solar power is already cheaper than grid-produced power in many areas, even without subsidies. So I’d expect quite a bit of conversion to happen automatically over the next few decades, as people invest their own capital because of favorable return on investment. (A watt of solar panels costs 83 cents and produces over 20 cents of electricity per year, even right now with 10 cent/kWh electricity) http://www.ecobusinesslinks.com/surveys/free-solar-panel-price-survey/

ERE: The problem is transmission and storage. Solar doesn’t work so well in Alaska or in the dark. Storage (batteries) bring the cost up locally and line losses (ohmic resistance) on the grid brings the cost up regionally. This is why you can’t set up a 5 Terrawatt solar facility in Arizona and transfer the electricity to Maine. The line losses would be too large. So while solar is an adequate replace when and where the sun shines, it’s not a solution elsewhere.

Remember that oil still beats electricity when it comes to expense and power/weight for the fuel plus power plant. If you calculate the rate of power transfer, that is, how much energy is in the gasoline divided by the transfer rate when you fill up your car … it comes to something like 20 MegaWatts. That’s HUGE!!! To compare, while filling a tank takes a couple of minutes, recharging the batteries of an electric car takes hours.

So in conclusion, solar will be a solution somewhere, but it will not be a solution everywhere like oil has been.

4: Price Changes May Force Production and Consumption Changes

MMM: So my own theory on peak oil is that yes, crude oil production is near a peak, but the predictions of economic collapse fail to take into account thechanges that come with higher prices: alternative sources coming out of the woodwork, and behavior change. In fact, just like the effect of a dramatic increase in the price of cake on a couch-dwelling cake addict, peak oil might even trick the human race into replacing fossil fuels and reducing parasitic energy waste much sooner, removing a boat anchor we’ve had against economic efficiency.

I agree. The potential for efficiency increases mainly from lifestyle changes (not technological gadgets) are very large. At $1/gal people happily drive one hour to buy their favorite bag of doritos. At $5/gal they start shopping for high MPG cars. At $10/gal they’ll switch to scooters or bicycles. And similar in other fields. Since this happens slowly those who look beyond the next quarter or year can make strategic choices and reduce the impact to almost nothing. Hard it is for consumers to believe, the ones who believe that spending is proportional happiness, it’s just not true. We can live just as happily spending much less. Economic success should not necessarily be measured by the current standards which seem to equate success by how fast we can make stuff and put it back in a landfill. Those who resist or are too slow to adapt are going to get suckerpunched by a changing reality.

5: It’s too complicated to make Overly Dire Predictions

MMM: If my theory on why peak oil is not such a big deal were to be proven correct someday, I’d even put forward a second theory as to why it happened: I think it is because that the study involves many fields: geology, economics, electrical engineering, psychology, government policy, and various other things I don’t know about. The people who specialize in each of these fields seem to lack sufficient knowledge in the other areas to be able to predict the complete outcome. For example, the oil experts seem to neglect the natural gas supply, or assume that transportation cannot be made more efficient, or that electric cars will never exist, or assume that oil demand is inelastic to price. Things like that.

ERE: Absolutely! I remember seeing a few years ago how climate change models actually did not include any realistic components for the decline of oil use. Unbelievable! But I think this kind of ignorance is the primary weakness of the compartmentalized specialization focus on experts that our culture has fostered. It’s a big problem.

It’s also annoying how our usual way of doing business prevents us from making smart choices. A lot of the solutions are being cast as “buying green gadgets” because buying stuff is the only way consumers can imagine to solve any problem. However, that’s just not good enough because it’s not going to solve the fundamental problem that is “buying junk you don’t need in the first place”.

Mr. Money Mustache Concludes:

Ahh, I guess Jacob and I don’t disagree as much as I thought. It seems clear that fossil fuels are not infinite, and it does us harm to burn them anyway. So the real question is how painful will the adjustment be if these things get more expensive? If you design your life to be energy-efficient right now, you get the best of both worlds. Greater wealth immediately, and more insurance against energy price changes in the future.

Of course, the climate change we’re causing from all this burning is a whole separate issue and shall be told another time. But your personal solution remains the same: burn less, get richer.

You can read more from Jacob in his book called Early Retirement Extreme. Book Available here, my own little review here.


More Notes on World Energy Supply:

The Economist: Shale Gas is Giving a Big Boost to America’s Economy

Cia Factbook: Oil Consumption by Country

BP’s estimates on world energy in the year 2030.

Scientific American on Solar Energy Price trends. (thanks to a reader for sharing this link!)

Here are the types of things energy traders look at when speculating on the short term price of energy. (Note that gas prices are not set by US oil companies, evil gas stations, or The President as is commonly assumed by the nation’s undecided voters).

A physicist speculates on the physical impossibility of permanent economic growth on a finite planet.

  • Dan November 5, 2012, 9:51 am

    Very interesting and also very different from the standard “micro” issues for the blog. Obviously, I think it’s still of interest to anyone who cares about living within a small footprint, be it financially or otherwise.

    • Mr. Money Mustache November 5, 2012, 10:26 am

      Yeah, I try to keep things on the individual level in most of the articles, but really our collective future as a species is what it’s all about, and it’s why I write the blog.

      At the moment, we’re wasting our time/energy/money/natural resources on a lifestyle that is mostly bullshit, so we need to fix that by embracing a more satisfying lifestyle.

      It happens to make you very wealthy in the process, but that’s just a convenient side-effect. Really we’re saving the world.

      • Dan November 5, 2012, 12:10 pm

        I tend to follow things like renewable energy or climate change from a distance because it’s futile to spend my own resources (time, brain cycles) worrying about them.

        I’m less concerned about the existential threat of the future because I tend to think that if we kill off our way of life, our planet and ourselves in the process, it will be well-deserved.

        Germany is doing a good job proving that a developed nation can significantly cut their carbon output, but it’s the developing world that will define the future demand for fossil fuels. If nations start to fail due to rising prices and increased dependence on oil, I’m not sure it matters whether post-industrial nations are still there to thumb our noses or not.

        Like I said though, I think we all realize that living within our means is about much more than just personal finance, in the same way that driving an SUV is conspicuous consumption in more than one way. It’s all connected, man!

      • OhioSteve November 5, 2012, 4:46 pm

        As long as MMM is going macro I’d recommend the book Abundance: the Future is Better Than You Think by Diamandis and Kotler. It certainly falls right in line with the optimistic outlook of this blog. Things are looking up, as long as you have the right approach, personally and globally.

      • Joy Host November 6, 2012, 11:44 pm

        LOVE (this comment, & the wit behind it).

      • Joy Host November 6, 2012, 11:44 pm

        LOVE (this comment, and the wit–and truth–behind it).

      • 205guy November 9, 2012, 4:14 am

        I think MMM’s comment just made me realize what mustachianism and ERE is: temporal arbitrage between the high-salary high-consumption of today’s oil-driven growth economy and the low-salary low-consumuption of tomorrow’s renewables-limited economy of stasis. By adopting the low-consumption today, you get all the free time until low-consumption becomes the norm (or rather inevitable). At that time, everyone will be mustachian, but out of necessity and it won’t enable them to retire early.

        This also answers the perennial question: what would happen if everyone adopted mustachianism today? Lower consumption would slow down the economy until everybody’s salary matched their spending (ie consumption). But the economic contraction would not bring hardship, because everybody practicing mustachianism would be prepared for it. So the mustachian lifestyle would survive, but the FI side of it wouldn’t. The beneficial side effect is that more “free” energy would stay in the ground (oil, gas, coal, and tar sands) and not contribute to climate change.

        PS: I just wanted to add that I recognized that photo from Ken’s blog immediately. Someone linked to his anti-student debt/van living blog in the comments a long time ago, and I’ve been reading his adventures ever since.

        • freegfrog July 25, 2014, 3:39 am

          GDP would drop, but as an article mentioned, using GDP to measure a country’s eceonomic health is like counting the number of notes played to judge music. I’m sure the 400 year old buildings in Europe used by 20 generations has saved 20 generations plenty, but the current economic measures would not reflect it, or the savings from MMM.

  • Joe @ Retire By 40 November 5, 2012, 10:05 am

    Wow, pretty extensive discussion on a big subject. We have a pretty small foot print right now and only use $50 worth of electricity and $50 gas per month. I think the switch away from oil will happen gradually. The price will keep increasing and when it makes sense, people will switch. It’s already happening and I’m sure alternative energy will be replace oil in our lifetime.

  • Noel November 5, 2012, 10:11 am

    Mustache, you should read the book Reinventing Fire. I haven’t made it all the way through yet, but the guys out at the Rocky Mountain Institute seem to have thought through more of this than most people. Other good reading is the Renewable Energy Futures Study.

    • Mr. Money Mustache November 5, 2012, 10:22 am

      Thanks Noel, I love the Rocky Mountain institute and that sounds like a great book recommendation – I’ll take a look at it.

  • Andrew November 5, 2012, 10:13 am

    Great post! I agree with both MMM and ERE (P90 level ;) ), but I’m actually a bit more optimistic on the issue than ERE, because of a few things:

    * As mentioned in the post, renewable energy is great, but the sun doesn’t shine enough everywhere. However, there was no discussion of wind power, tidal power, and geothermal, which will supplement solar. In any case, renewable energy needs better storage; there are lots of upcoming technologies being worked on to solve this issue.

    * There are biofuel algae solutions that would work right now, but they would produce fuel that will cost $10 or more per gallon, so they’re not feasible until gas costs that much.

    • Sister X November 5, 2012, 1:14 pm

      I agree that focusing entirely on solar power leaves out much of the picture, however those STILL won’t work everywhere. ERE specifically cited Alaska, which is where I live. The interior of Alaska has a lot of unique problems when it comes to renewable energy. We are hundreds of miles from any coast, the sun doesn’t shine in the winter (around the solstice we will get about an hour and a half of dawn and dusk, all at once), the wind (thankfully!) doesn’t blow much, and our geothermal capacity is limited. There are experiments here to see what can be done (a hotel run on geothermal energy, some solar installations) but the current technology has limited uses here.
      Even something as basic as switching to heating entirely with wood would be problematic. We have lots of forest area around here, true, but with the slow growth of trees it would take far longer to replenish the supply of wood than it would for all the people living here to burn it. (That’s also without calculating in the forest fires we get every year.)
      The algae is intriguing, but we’d still need to do lots of tests to see if it would operate in such extreme conditions.
      Anyone care to come up with a form of energy that runs on cold?

      • Mr. Money Mustache November 5, 2012, 2:29 pm

        But fossil fuel shortage is not an Alaska problem – the population of that region is tiny. It’s a world problem (if it is a problem at all), so what matters is having many sources of energy to suit the many different population clusters.

        Los Angeles, Phoenix and Denver can easily run on solar panels alone. The Midwest might use more wind power. Alaska might use oil forever, or maybe there is Iceland-style geothermal energy hiding beneath the volcanoes. Europe might do well with nuclear power plants or offshore wind. Just as we all manage to get food onto our tables every day regardless of where we live due to a decentralized food production system, there is energy scattered around the world ready for harvest. The less we rely on a single world-priced (and hedge-fund-traded) commodity that is dominated by dictatorship countries, the more flexible our economy can become.

      • MooseOnTheLoose November 5, 2012, 3:28 pm

        How did the Alaskan people prior to European invasion live? Maybe the answer to your question starts there. (Low population density + animal fat + warm clothes & cuddling + no central heating.) Perhaps the consumption- and fuel-intensive lifestyle that has been introduced relatively recently in Alaska (etc.) is unsustainable?

        • Sister X November 6, 2012, 11:27 am

          MMM, yes the population is small and perhaps so it would take us much longer to burn through fossil fuels than it would for other places. But we also have a unique thing called the temperature inversion. (At least, Fairbanks does.) On cold days (like today, -26) it’s as if a bowl has been placed over the valley we’re in and all of the pollution is trapped. The power plant near my house (run on coal) has a vent and you can see the steam go up and then, suddenly, it veers to the side and travels horizontally for miles. All of the cars, wood burning, and coal smoke, get trapped here. For smaller populations it wouldn’t matter so much but it does when you’ve got a city of about 35,000 people. This is one reason there’s more asthma than normal around here. (And yes, my husband and I do frequently revisit the question of, “Why do we live here? Are our reasons still good enough to stay?”)

          MooseOnTheLoose, definitely it’s unsustainable. I think the biggest problem, though, is that people don’t think they need to change their habits to suit their environment, they’d rather change their environment to suit them. Think of people who use air conditioning for any temp over 70. A lot of people here are living relatively low-resource lives but a vast majority of people don’t see why they should be uncomfortable for even a second. Even basic things such as dressing for the weather is something that many people don’t do. Girls walk around in light jackets and open-toed shoes to look “hot” (really, ridiculous) and boys like to show how “tough” they are by not wearing hats and such. I work at a University and I pass a high school on my way to work every morning, so I see this every day. Sadly, it’s not just younger people. They’ve been learning it from their parents.

      • YAR November 7, 2012, 8:19 am

        Alaska is actually blessed with abundant (though not ideal) geothermal energy resources. The issue as i understand it is that the “Hot Springs” are not all that “hot” but there are some examples of harnessing this resource. Here is a website for at least one location: http://www.chenahotsprings.com/geothermal-power/

        • Sister X November 7, 2012, 10:54 am

          I love Chena Hot Springs. :)

  • Dragline November 5, 2012, 10:21 am

    Re item 5, there’s an interesting discussion about the difficulties in predicting climate change in Nate Silver’s new book, “The Signal and the Noise.” He generally concludes the same as you — i.e., the variables are too numerous and complex to make accurate predictions using today’s models. That could change, but we’re not there yet.

    And that overstating such predictions is damaging to the credibility of the science, much of which has been around since the 19th Century.

    On the other hand, I think I’ll be shying away from buying any ocean-front property . . .

    Re the natural gas situation, I’ve heard all sorts of ideas as to how its going to play out. One of them is that the U.S. is going to become a huge energy exporter once some new LNG facilities are built, which will usher in a new golden age of prosperity in North America in the next few decades. Another is that we will severely damage our groundwater by fracking and suffer disease and death. Again, either — or even both — could be correct.

    But a low usage/impact lifestyle is cheap insurance against unpredictable outcomes. That’s the big takeaway here, I think.

    • Jamesqf November 6, 2012, 8:32 pm

      “And that overstating such predictions is damaging to the credibility of the science, much of which has been around since the 19th Century.”

      Crap. As you say, the basic science has been around since the 19th century, and is well tested. The predictions are quite clear, the only problem being that an awful lot of people just don’t want to know. This is called wishful thinking, and damages only the credibility of the wishful thinkers.

      • Novacek November 7, 2012, 11:36 am

        Crap back. Which science?

        In a purely static environment, sure, more CO2 traps more heat. Okay, how does that affect ocean currents (mitigating or exacerbating the effect differently in different spots)? How does that change rainfall patterns? Who gets _more_ snowfall? How does that affect global albedo? How about solar cycles? Do you try to burn less coal, but then does the reduction in particulates _increase_ solar heating.

        Those may or may not be answerable questions today, but to claim that the science has been around since the 19th century is completely false.

  • Joe November 5, 2012, 10:30 am

    Improvements in technology could completely counteract increasing energy costs with respect to quality of life. The extreme or silly case of that argument would be a Matrix-like world with neural interfaces, IV food, and insulative shells, powered by a square meter or two of solar panels per person.

    I do see peaking energy costs coming around the same time as the western world loses its hegemony in production, finance, and military power. Quality of life, to my uninformed study, seems to be equalizing across the globe among the working class. These put another strain on the way we live, pushing back against efficiency-increasing technologies. I don’t know how to predict the net effect.

    Given my ignorance and acknowledged biases, my best prediction can only be for more of the recent past. But I think your strategies would prepare someone well for any eventuality.

    • Jamesqf November 6, 2012, 8:40 pm

      How does that matrix-like neural interface actually improve quality of life? Seems to me that it more realistically reduces it to new lows. After all, we do read the occasional news story of someone who does nothing but sit in front of the TV sucking down chips & donuts, until they become so obese that emergency crews must cut holes in the walls to remove the corpse. Aren’t those people just Matrix pioneers?

      • Joe November 6, 2012, 9:25 pm

        People sitting in front of the TV are pursuing short term rewards and neglecting long term rewards.

        The neural-implant example is just a rhetorical device to demonstrate that sufficient technology can almost eliminate the need for energy. Whatever kind of life you feel would be ideal for humans, we can provide it in principal for the cost of a neural implant.

        • Jamesqf November 7, 2012, 10:58 am

          First, you can’t provide that kind of life, or any kind of life, at the cost of a neural implant. At best you could provide an illusion.

          Second, the cost of such a system is not so low as you might suppose. I can’t find the link right now, but I think it was the “Do the Math” blog that had an analysis of the computational & energy costs of implementing a true Matrix-like environment, and they are non-trivial.

          In most cases, it’d probably use less energy to actually do the thing that to create a Matrix-like simulation. If I want the experience of say riding a horse, it’s a lot easier & more energy-efficient just to buy the weekly bale of hay.

          • Joe November 7, 2012, 8:52 pm

            It was a rhetorical device in service of the argument that technological development can in theory push back the effects of diminishing energy reserves.

            If you’re philosophically opposed, you could imagine life under the refinement of fusion power, etc.

          • James November 4, 2015, 9:25 am

            I’m extremely skeptical. Horses require on the other of ten times the energy of a human. Meanwhile a small medical device attached to a fairly powerful computer uses on the order of one tenth of the energy of a person, especially when you take food energy efficiency vs electrical energy efficiency into consideration.

  • Eschewing Debt November 5, 2012, 10:32 am

    I definitely see a trend toward people becoming more energy conscience. Many houses in my suburb have solar panels, and a lot of people are buying fuel efficient commuter cars (though they also have an SUV family car- but at least it is a start!). I am certain these trends will continue- if not to save the earth, at least to save the wallet. If and when gas gets to $10/gallon, a lot of people will choose a more environmentally friendly lifestyle!

    Great article as always!

  • RubeRad November 5, 2012, 10:37 am


    MMM translation: “punched in the face”

    …points asymptotically to a total global oil endowment around 2000-2500 billion barrels in the world. Out of those we have used about half which leaves a P50 estimate of around 1200 billion barrels left.

    It would be helpful to see a graphical depiction of this data, can anybody link to one?

    • Dillon November 6, 2012, 8:42 am

      You mean you just want a Bell curve with the left half shaded in symbolizing used up?

  • EnergyConsultant November 5, 2012, 10:45 am

    MMM, I absolutely love your blog and have read it for a while without commenting. I am trying to grown my own mustache as well, following your suggestions!

    As an energy consultant, this particular topic is very interesting to me. I have done work in renewables, energy efficiency, nuclear, natural gas, etc., for various organizations as a management consultant and as an expert witness. I think the points in this article are very valid. The only two comments I would have are:

    – Natural gas has been a big paradigm shift and has shown that you can break the EROEI progression (i.e. over time, you can improve technology and be able to reduce effort needed to get your 10,000 calories out of the ground). Certainly not a guarantee, but it’s possible we could extend the oil era a little further (it will still end at some point).

    – Renewables are still far too expensive compared to coal or gas. You mention solar at 83 cents per watt. That is just the cost of the panels coming from subsidized Chinese manufacturers in an over-capacity situation. When you add in the installation costs and the balance-of-plant, you are talking more like $6/watt (without accounting for the subsidized/over-capacity part) for a residential system and $3-4/watt for a large-scale installation. I speak from experience, both business and personal. I have recently put solar panels on my house. Raw costs of the entire installation: about $ 6/watt; after subsidies: about $1.6/watt and a 7-yr payback. Without subsidies there is little chance for solar, unless you are in the middle of the desert and electricity is super-expensive. I hope things change, but that’s the reality now. Onshore wind is much more competitive than solar, but still dependent on subsidy. Also, renewable power generation displaces oil, only inasmuch as you have electric cars — still a way to go before you get any broad acceptance, with the large battery costs

    I very much appreciated this article, and I look forward to continuing to read your awesome blog!

    • Joe November 5, 2012, 11:21 am

      I’ve wondered how deep the energy cost analysis goes into solar and wind production.

      I’m guessing they account for the energy that goes into acquiring and refining the raw materials, and the energy of putting those together into a finished product.

      Do they also account for the energy that goes into making the machinery that produces the solar panels or turbines? The facility which houses that machinery?

      Do they account for the cost of producing and maintaining housing for the workers who make the solar panels and turbines? For the energy cost of the food that feeds them? For the cost of producing and maintaining transportation systems to take them to work?

      For the cost of producing and maintaining transportation systems which take the panel or turbine to its final destination?

      I still haven’t quite wrapped my head around whether these costs matter. I’m fairly certain that they don’t matter when you’re comparing them on an equitable basis to another energy source, in that case relative costs are enough and you could maybe assume that all of the background evens out. But if you’re talking about the sustainability of the entire system, then it feels like you would need absolute costs.


      • Early Retirement Extreme November 5, 2012, 2:05 pm

        That’s a really good question. The answer is that it depends. In order to give a true answer, the energy loops have to be closed. What makes it particularly gnarly is that the EROEI for oil >100 which is practically infinite and the EROEI on wind and solar are ~1-10 which is practically unity.

        Therefore it doesn’t take much inaccuracy in the exact input numbers to render the calculation meaningless.

        A true test would be if some region actually ran 100% on renewables without relying on the import of anything.

        • lurker November 5, 2012, 4:00 pm

          think I saw an article about a small town in Germany that ran completely on three big wind turbines and in fact sold some energy to the next town over….maybe I was dreaming…

          • Early Retirement Extreme November 5, 2012, 4:35 pm

            For the experiment to work, the wind turbines would have to be built in the town using wind turbine power. The material for the turbines would be mined using wind energy. The food for the people making the turbines grown with tractors running on wind energy. And so on.

            • lurker November 6, 2012, 4:34 pm

              you got me there…did not read your comment carefully enough…hope the hedge fund is treating you well and that you are having fun…of course if not you are free to leave, unlike most of us. cheers.
              it was good reading you again.

            • Chris November 8, 2012, 3:18 pm

              Bit chicken and egg trying to build and install wind turbines using energy from wind turbines – there needs to be a start somewhere.

              Love the discussion and article though

        • Alan November 5, 2012, 4:12 pm

          Albania, Iceland, Lesotho, Paraguay and Tajikistan all get 100% of their electricity from renewables (according to Wikipedia). A further six are at the 99% mark.

        • Joe November 5, 2012, 7:04 pm

          You might be able to address the question with a modeled society. I know where I’d start. The math would be easy, but the research would quickly become a rabbit hole.

        • James November 4, 2015, 9:26 am

          What do you think of the idea of increasing embodied energy in the system (via savings and investment in the present, vis a vis the early retirement movement) now, while energy is cheap, so that when the loop is closed by force of nature, there’s a bigger industrial base to work with?

      • Jamesqf November 5, 2012, 8:01 pm

        “Do they also account for the energy that goes into making the machinery that produces the solar panels or turbines? The facility which houses that machinery?”

        Fair question, but any analysis has to include the same factors for all the energy sources it’s considering. So if you compare solar to say coal power, then alongside the energy going into making & installing solar panels that produce X amount of electricity, you have to include the costs of building & running a coal-fired power plant to produce that amount of power, the cost of trains to ship coal from mine to plant, the cost of the mine itself and all the equipment needed to run it…

        I don’t claim to know the answers off the top of my head, and have more interesting things to do than research it, but I am willing to bet that it’s not a simple matter of the coal-fired plant magically appearing out of nothing one day.

        • Joe November 9, 2012, 7:44 am

          Right. I mentioned that consideration in my question.

          My question wasn’t about comparative analysis, though. It was about absolute EROEI, which you need to calculate in order to evaluate sustainability.

    • Mr. Money Mustache November 5, 2012, 11:27 am

      Thanks Energy Consultant – it is always great to hear from someone in the business.

      How large do you estimate the effect of the “subsidized Chinese manufacturers” effect is? After all, you can also buy US-made panels for $1.00/watt, and regardless of subsidies, prices are dropping due to manufacturing efficiency and technology advancement (see the Scientific American link provided by another reader as a great example).

      Also, you are right that US-based installation on a home is currently ridiculously expensive, because (around me at least), these boutique solar companies are making huge profits on their labor. But a do-it-yourself, simplified plug and play system that is idiot-proof could quite easily be developed and sold. I imagine throwing a $599 “Whole House Solar Kit” onto the flatbed cart at Costco someday.

      As for the “balance-of-plant” – most notably the inverter – these things are currently extremely expensive at $2000 for a household-sized one.. but those too are relatively simple devices that I expect to drop in price massively as volume goes up. And I see they are finally starting to drop in wholesale settings (although the boutique businesses noted above are happy to keep charging much more to their customers for now).

      One of my MMM science projects on the books is create a do-it-myself solar system for my own house and document it – to show how affordably it can be done when you know what to buy. But it’s not at the top of the list, because renewable electricity is cheap in my area and the city offers an unfavorable buyback program for surplus power and no subsidies. So the project would be a slight money-loser for me, but fun nonetheless if it could help others.

      • EnergyConsultant November 5, 2012, 2:23 pm

        Thanks for the response, MMM.

        1) On the Chinese subsidies: I don’t really know and won’t speculate.

        2) U.S. panels at $1/Watt? Last time I checked, I thought the only available ones for that price (maybe) were thin-film panels (First Solar), which are less efficient that crystal silicon. I may be wrong, but other U.S. firms have struggled — in your neck of the woods, you have probably heard of Abound. They offered me a job in 2008, and I liked their technology, but in the last couple of years, they just couldn’t compete.

        3) Yes on decreasing costs of solar. I like solar and I root for solar. I hope costs will come down much further. However, a) the same could be true for competing technologies — natural gas horizontal drilling, as it expands, is getting cheaper and cheaper, and natural gas, in many states, sets electricity prices, b) at some point, even Moore’s law stops — once you get to commodity status, it’s hard to go any lower, so I don’t know for how long you can continue to decrease the costs. Globally speaking, solar has already seen very large volumes.

        4) Yes on installation. Probably overpriced for a residential system, even though it still took the installers a few days of work with a 3-4 people crew, and you have to rack the entire roof (and in some cases reinforce it as well). I wasn’t mustachian enough to do myself — maybe I was just too afraid of electrocuting myself in the process. But, hey, I would love to see an idiot-proof (read “EnergyConsultant-proof”) MMM solar installation kit.

        Maybe it would be better to talk about utility-scale projects, which benefit from scale, not having to deal with rooftops, and a good shake-down of the installation contractor — those cost only about $ 3 / Watt, so that may give you a better sense of what’s possible on the installation side.

        Also, the Department of Energy had launched the SunShot program, to try to take solar costs down to $ 1 / Watt installed. You may want to check that out — a long way to go, but it shows some assumptions with respect to how it could be possible to reach $ 1 / Watt installed.

        • Ross November 5, 2012, 7:24 pm

          I agree with you that Solar will probably never be a DIY project that most Americans can accomplish. (Although here’s someone’s attempt at it… http://www.spheralsolar.com/products/Deck-Mounted-Grid-Tie-Solar-Power-Kit-(Plug-and-Play).html )
          It’s really more like sizing and installing and HVAC unit, which DIYers typically steer clear of.

          Here’s the thing that makes me really optimistic. I work in the sustainability department of a large company and we paid $4.50/watt in 2010. We are looking to do some more, and the price has fallen to $3/watt (both un-subsidized). I know the price of solar will not continue to drop at that rate (although maybe it will…), but we are not that far off from grid parity. Buildings in Puerto Rico and Hawaii are ripe for solar. The cost of electricity is $.30/kwh!!

          Like Amory Lovins says, we stopped using whale oil before we ran out of whales. I’m not saying solar is going to take over 100% of the market, but I believe it’s going to be cost competitive in many markets sooner than we think.

          • EnergyConsultant November 5, 2012, 9:15 pm

            Yep, I am hopeful as well, and it’s encouraging to see the cost trajectory of solar. I guess I am just more aware of the limitations of each technology, and the barriers to large-scale adoption. Wind has been overall a success story in the United States, and solar hopefully will get more widespread as well. But, with no price on carbon, it is hard to see renewables getting over 10-15% of electricity generation over the next 10-20 years (still significant, though).

            Islands are very interesting from an electrical system perspective. I can’t speak for Puerto Rico, but I am familiar with the Hawaian system. Yes, they are ripe for solar, since their electricity prices are indeed 30+ cents/kwh because they rely on expensive, outdated, inefficient oil plants, unlike the rest of the U.S. that relies on much much cheaper coal, nukes, and gas. At the same time, the intermittency problem of solar becomes a bigger issue when you are dealing with micro-grids — in Hawaii they recently installed renewables coupled with storage to resolve that problem, but that makes the cost higher. Geothermal and biomass are a better fit for island grids.

            • lurker November 6, 2012, 4:36 pm

              i would think wind would solve Hawaii’s energy problem quickly…no?

            • Jamesqf November 6, 2012, 8:44 pm

              Seems as though Hawai’i would be a perfect site for geothermal power. If you’ve got the resource, it works just fine – there are plants just up the road for me that have been cranking out 100 MWatts or so, 24/7, for years.

            • EnergyConsultant November 7, 2012, 6:39 am

              Geothermal: yes. Good baseload power. Perfect fit for Hawaii.

              Wind: not that good for a micro-grid, because it’s intermittent and, by itself, would make the grid very unstable. You need to couple it with some form of storage or back-up. Since you don’t have natural gas on the islands (the most common back-up solution for wind in the lower 48), you are talking about batteries, which are expensive.

            • 205guy November 9, 2012, 5:11 am

              Geothermal in Hawaii is limited to the Big Island, and that’s too far to send to Honolulu. There are some solar farms (PV) here and there, though I think thermal solar would do better (and you can store the molten salt to get energy out at night). Wind farms are the big thing now on the islands next to Oahu, with underwater cables to feed the big city. But they have the problem of really affecting the landscape and hurting the native and endangered birds. For storage, I have heard of some battery systems. Better would be reservoir storage (pump uphill when windy/sunny, get hydropower when not) as is done on El Hierro in the Canary Islands.

        • jet November 5, 2012, 10:58 pm

          we only got a 1.5kw system but it only took a couple of hours for two guys to install it on our roof.

        • Townley January 12, 2016, 1:52 pm

          I think there’s a bigger picture to look at here that EnergyConsultant has (tangentially) touched on: the role of energy in general.

          Given that modern civilized life is so heavily dependent on energy for everything from powering hospitals with their MRIs and neonatal ICUs, to refrigerating and transporting food, to purifying water in order to make it potable on a mass scale, to… well, everything! Given all this, it’s good that we have such cheap and abundant sources of life-saving energy. It’s good in a moral sense. It’s good despite the risks of using the technology because the benefit of having access to cheap and reliable energy far outweighs the consequences of not having it. If you want a safe and healthy life for you and your family, the developed world is where you want to be.

          Anything and anyone concerned with producing and delivering this energy is likewise good. And any technological improvement that makes this process less expensive is also likewise good. (I believe someone in the comments to this article mentioned technology that is lowering the costs of current drilling technology. That’s frakking awesome! :)

          On the other hand, forcing tax payers to subsidize sources of energy that are more expensive and less reliable is morally abhorrent, regardless of the source. It only hurts those whose lives are improved by having access to cheaper and more reliable energy, which is to say all of us. Let these other energy sources compete fairly on the open market with the current big guys. There are those among us willing to pay a small premium to favor one method over another. That’s totally cool. But it’s not cool to force people’s hands via legislation and/or wealth redistribution.

          It’s been demonstrated in these comments already that advances in technology are lowering the costs of implementing renewable solutions. If at some point in the future renewable energy sources outcompete fossil fuels, then more power to them (no pun intended)! I’ll be the first in line to sign up on the day that happens. Until then, I’ll stick to fossil fuels.

          • Mr. Money Mustache January 13, 2016, 10:28 am

            Great! Just remember to take externalities into account in your ideologically and economically pure thought processes. Ignoring pollution or becoming an armchair climate change skeptic doesn’t qualify as rational thought – from one libertian-minded person to another.

            • Townley January 16, 2016, 12:10 pm

              You make a really good point. The goal here is rational thought, and ignoring pollution doesn’t get you there.

              Lemme clarify my position so there’s no confusion. I mentioned that fossil fuels are good *despite* the risks because the benefits outweigh the consequences (it’s in the 2nd paragraph). Every technology we use has risks associated with its use, and the risk of using fossil fuels is that property might be destroyed. And in a really bad case, food and water might become contaminated and some people could get sick.

              But without affordable and reliable energy, which fossil fuels are largely responsible for providing, modern civilized life couldn’t happen. No modern agriculture, no cars, no modern hospital equipment, no clean potable water, no internet. No nothing.

              My position is that all these benefits are worth having despite the risk of an accidental spill or whatnot. The people who produce these benefits are morally good because of their beneficial impact on human life. That’s doctors, farmers, factory workers, truckers, and even drillers and miners.

              All that being said, if there’s a risk of something happening, it will happen given enough time. When pollution does happen, it is right that the people being polluted take the polluters to court and make them pay for damages. We all have rights which must be protected. So I’m not saying Yeah, let polluters pollute because internets. But we have gotten better at producing energy in a safe and responsible way. Just compare our cleaner air and water to England at the start of the Industrial Revolution. Or hell! Compare it to modern China!

              But “armchair climate change skeptic”? I will admit that I’m not yet convinced that our contribution to climate change is going to result in a catastrophically bad scenario. There have been too many doomsday predictions that never happened and work done by credible dissenting scientists (see: https://curryja.files.wordpress.com/2012/07/christy-testimony-2012.pdf) that I don’t take *any* climate predictions — good, bad, or indifferent — on faith.

              One can be a skeptic without being unreasonable. But if my opinion had agreed with yours, would you have accused me of being an armchair anything?

              (Sorry for being long winded. I catch hell for that at work, too. Ironically, I really don’t talk all that much :)

            • Townley January 16, 2016, 12:20 pm

              I forgot one thing. MMM, I tripple-dog dare you to go read the book The Moral Case for Fossil Fuels by Alex Epstein and honestly see if it affects your thoughts on the issue in any way whatsoever. Amazon link: http://www.amazon.com/The-Moral-Case-Fossil-Fuels/dp/1591847443

            • Janne July 19, 2017, 3:17 pm

              Even if one ignores human effect on climate change, it’s not so easy to ignore that oil is running out and that the whole world economy runs on oil. The remaining oil reserves and shale oil and other replacements have much lower EROEI than oil sources of the past decades. Oil scarcity will have huge effect on all industries, including food production. If you want to learn more about the topic, I recommend reading the book The World After Cheap Oil. There’s a review/summary on this website:


      • energy_engineer November 16, 2012, 5:58 pm

        “How large do you estimate the effect of the “subsidized Chinese manufacturers” effect is?”

        I can comment on this with some authority – a few months ago we changed part of our supply chain to avoid the USA/China counterveiling duties on Chinese solar.

        My company buys a LOT of solar panels – not huge ones, but combined plate power is large.

        We ended up buying silicon from the same company, but from their Taiwanese based factory. The price difference for that company was $0.002667 per watt. For a 15W panel, that’s a difference of 40 cents on the silicon. That works out to a difference of less than 5% for the silicon.

        For the entire module (EVA+glass+aluminum+assembly), the difference between subsidized chinese cells and unsubsidiezed Taiwanese cells is around a 1.5% difference. No difference in anything EXCEPT the location of the factory where the silicon was produced.

        You can imagine that after doing this entire sourcing exercise, we were left scratching our heads.

    • fiveoh November 5, 2012, 11:44 am

      “- Natural gas has been a big paradigm shift and has shown that you can break the EROEI progression (i.e. over time, you can improve technology and be able to reduce effort needed to get your 10,000 calories out of the ground). Certainly not a guarantee, but it’s possible we could extend the oil era a little further (it will still end at some point).”

      I agree with this 100%. We leave TONS of oil in the ground currently because we dont have the technology to get it out. The natural gas boom is all about technology(fracing and horizontal drilling) and I think we will continue to see technology innovation in the O&G industry that helps push “peak oil” further out.

      • Martin November 5, 2012, 12:30 pm

        The same technology that recently brought us cheap gas (fracking – i.e. fracturing of source rock to enhance recovery) is now being applied to oil reservoirs to improve recovery and to recover oil which was previously not available to extract (shale oil). this is part of the reason why you see oil prices falling and estimates that the US may become self-sustaining in oil production once again.

        Several massive discoveries (Alberta/Saskatchewan, Texas) have suddenly opened up huge new supplies for future consumption. We’ve just pushed back peak oil for another generation. Its all a part of the complex cycle of high energy costs spurring new technology which will drive prices lower once again.

        Fortunately cheaper energy may help lift the US out of its current economic woes, unfortunately we have become habituated to higher prices and lower prices will only serve to boost consumption and reduce incentives to find alternatives. Billionaire T Boone Pickens was a big proponent of retooling how we build cars, to drive on nat gas. Now that cheap oil may be back in style, even this modest improvement in energy efficiency may be shelved.

        As for wind energy as an alternative – look at Germany and the brutal consequences of trying to reply on wind to supply capacity. http://www.telegraph.co.uk/comment/9559656/Germanys-wind-power-chaos-should-be-a-warning-to-the-UK.html

        All the while the world continues to ignore the cost of oil driven conflict, acidification of the oceans by increased CO2 and many other toxic side-effects of a petroleum/plastics/hydrocarbon based society (without even having to step into the global warming controversy)

        my 2cents…

        • JZ November 6, 2012, 1:31 pm

          Ahh! But we’ve already got a fix for that instability in the works!


          The big problem with renewables has always been with the unreliability of them, making some form of power storage a problem. They worked out a way to store vast and virtually limitless amounts of power on an industrial scale using existing, reliable technology safely without generating waste in ways that you can fix with low tech tools.
          Works like this: take your excess power, and plug in next to some factory or some such that produces some waste heat. Now start pumping air through a bunch of rock rubble, pull the water and CO2 out of it, and refrigerate the rest until you have liquid air. Store the liquid air in pressure tanks on site, not too big and using existing safety precautions for storing liquid air.
          When the wind stops and the clouds cover the sun, start taking that liquid air and using it to cool the waste heat; this will boil the air. Run the pressurized cold air through a power turbine to generate energy, then let the still very cold air vent through the rocks, cooling the rocks down and reducing the amount of energy that will be needed to liquefy it when the balance of power reverses.
          Poof. 70% efficiency for a power storage solution able to store power for a major metropolitan area for weeks. Biggest objection to solar and wind power – gone.

      • MooseOnTheLoose November 5, 2012, 3:38 pm

        I am troubled by the discussion of fracking in purely economic terms, as an encouraging development in the oil crisis. Fracking has serious environmental consequences, often posing real threats to an even more precious natural resource: Water.

        • jet November 5, 2012, 11:00 pm

          Totally agreed Moose regarding your concerns about fracking

          • lurker November 6, 2012, 4:38 pm

            I am with Moose too…potable water could prove more valuable than oil….if we keep polluting it.

  • KingCoin November 5, 2012, 10:55 am

    I agree that there are a lot of reasons to be optimistic about solar:

    Couple cheap panels with developments in big, inexpensive, industrial batteries and solar can take a big chunk out of fossil fuels:

  • Acorn November 5, 2012, 11:07 am

    Love Jacob’s thought process and that he chooses to share those thoughts with others. Smart people are so useful. :)

  • James Kiffmeyer November 5, 2012, 11:10 am

    Excellent post, definitely agree that it’s great to have such a rational and balanced exposition on such a volatile topic. Best “macro” focused post of the blog so far!

    You can’t find posts like this everywhere, thanks for filling that gap and keep it up!

  • hickchick November 5, 2012, 11:14 am

    “Those who don’t prepare at all, rely entirely on pulling out their credit card and buying their way out of all their problems are likely to crash hard when gasoline prices cross $10/gal. I say this with a P90 probability.”

    Damn Jacob, I have missed your sense of humor.

  • ddrem November 5, 2012, 11:37 am

    I don’t understand the case for optimism here. You can switch entirely to alternative energy sources, reduce your carbon footprint down to the air expelled from your lungs, grow all your own food and be 100% sustainable. But if the 100,000+ people living within 10 square miles of you refuse to also forsake consumption and convenience for their long-term benefit, what have you gained? Their problems will become your problems.

    It’s Aesop’s fable of “The Ant and the Grasshopper” writ large, except that the grasshoppers outnumber the ants by a ridiculous margin. And if that human failing was common enough for Aesop to write a story about it back when all people had to be more or less self-sufficient, what’s it going to be like when the members of our relatively spoiled-rotten society have to do without? Do you think they will leave you to peacefully enjoy the simple and sustainable existence you’ve built for yourself?

    • Uncephalized November 5, 2012, 12:09 pm

      @ddrem, I think the main case being made is that the “instant collapse” scenarios are not very likely, so we’re going to see a decades-long increase in oil costs that will force everyone to adapt incrementally based only on CURRENT price signals, which avoids the “grasshopper problem”. The “ants” will still be better off than the grasshoppers because they will be implementing their changes further ahead of time; but it won’t look like Thunderdome for anybody.

    • Mr. Money Mustache November 5, 2012, 12:13 pm

      Ahh.. but if we could convince some of our fellow humans to adopt a lower-consumption lifestyle as well? And what if that allowed us to elect a government that would add a small progressive tax on energy use as most other countries have done, the proceeds of which would be fed back into the economy in other areas as investments or tax cuts?

      What if a fictional group of countries called “Europe” were already generating half the CO2 per capita that Americans create, even with higher scores on the UN human development index?

      Or what if solar energy became cheaper than oil, to the point that our children laugh at our quaint ways, just as we laugh at the effort our great grandparents put into maintaining steam locomotives so they could coat their old cityscapes with soot?

      There is ALWAYS cause for great optimism if you look at things the right way.

      • ddrem November 5, 2012, 2:40 pm

        Solar is likely to become competitively priced with oil in the future, as oil prices will move higher. That’s simply a result of supply and demand, and I don’t think anyone can argue otherwise. But that’s missing the point. If alternative energy meets oil at the $10/gallon level, who will be able to afford either?

        You might see this as a good thing since it would forcibly convert more people to the Mustachian lifestyle, and that isolated effect of higher energy prices would be beneficial for our society. However, there are other by-products of higher energy prices that will not be so good for the average joe or Mustachians.

        To start, you would have a hard time arguing that wages will rise to offset higher energy prices since they haven’t in decades. And in our global economy there will always be pressure to keep wages down in order to stay competitive with other nations. Higher energy prices means less savings for the average joe and Mustachian.

        Also, the average joe isn’t a Mustachian. And despite our best efforts to convert the heathen, he will always outnumber us. He will “need” a lot of consumer items, and those items will be shipped to him, probably from overseas. Those items require a lot of energy to produce and ship, and that will result in higher prices and less savings for the average joe.

        And food would still need to be grown, harvested and trucked into the population centers from farms. And higher energy prices means the average joe and Mustachian will have to pay more for food. We’re already getting a taste of this now.

        There is also the need to overcome the biggest hurdle to adopting alternative energies: their often substantial up-front cost for purchase and installation. And as another commenter noted, sustainable energy technologies require rare earth metals in their manufacturing. Their prices will likely not decline. Unless someone figures out how to make a functioning solar panel entirely from bamboo, I’d bet on gas prices rising to solar’s level and not solar falling to oil’s.

        With people paying more to maintain their lifestyles (even Mustachians), and wages being kept low, it will hamper the populace’s ability to move to alternative energies due to the up-front cost. Those who live a Mustachian lifestyle, save their money and switch to alternative energy early enough might be fine. But those who don’t will suffer greatly from higher energy prices. And they’re likely to be your friends and neighbors, who will covet what you have been able to provide for yourself.

        We can be optimistic, but let’s also be realistic that peak oil is a legitimate concern. You might structure things so it would cause you the least amount of pain, but most of us live in cities and towns alongside those who won’t follow our lead. And they will not cheer our hard work and good fortune when the high cost of living becomes unbearable for them.

        • Mr. Money Mustache November 5, 2012, 3:34 pm

          Ddrem, I think you are describing things from an anecdotal, rather than economic supply/demand, perspective.

          First of all, many Europeans already pay close to $10/gallon due to taxes, and they do just fine. The American car fleet could be doubled in efficiency simply by not using the ridiculous vehicles we currently do for no reason. That lowers the economic effect back to $5/gallon gas for personal transportation.

          Second, solar power is already cheap and won’t get more expensive – so we won’t see significant increases in electricity costs in the very long term, at least in areas where that or other sources are available. So there is a cap on costs.

          Third, I feel the US populace will never see “hard times” again. Our hard times now are mostly caused by excessive consumer purchasing, borrowing for non-investment spending, and voluntary car-driving. There is definitely a percentage of people who are scraping by with housing and food only, or less, (which is still millions of people because of our large population). But the majority of people could have their material consumption sliced IN HALF without losing the means to live a happy and fulfilling life. There would be difficulty, but difficulty and effort does not imply unhappiness in any way (quite the opposite). Doubling the price of gasoline would cause less than a 50% slicing in net spending power.

          When you combine the factors of fossil fuel production possibly continuing unabated for another generation, the advancements in alternative energy creating better alternatives to fossil fuel, and the fact that we could live just fine on less energy anyway (as we did earlier in the 20th century) if the first two points turn out to be incorrect, I find it extremely difficult to have anything to worry about.

          Instead of arguing about things, let’s just keep an eye on them as time goes on. Looking outside my window today: all is well. Will check again tomorrow.

          • MooseOnTheLoose November 5, 2012, 4:05 pm

            As someone who’s just submitted a PhD thesis on the situation faced by retail workers in the US (a sector accounting for the two single largest job categories in the country–cashiers and sales clerks), I’d like to ask for clarification on how “the majority of people” could cut their material consumption *in half* without losing out on quality of life. If I remember correctly, the median combined household income in the US is something like $50,000. Do you believe that a real-life family of four –one that has no savings to speak of, whose members get sick, who need dental care, whose car breaks down unexpectedly and needs repairs– can really live happily and healthily on $25,000 per year? The people in my study had to do without a lot of things that are actually pretty important (basic nutrition, dental care, safe housing, etc.) just in order to get by… and these are not people who had cable TV or a habit of going out. I ask because it seems to me that your ideas can work pretty well for those above the 50th percentile in terms of income / assets, but I’m skeptical about your assertion that it can extend as easily beyond that, to encompass an actual “majority”– including people who are born into harder situations.

            • Early Retirement Extreme November 5, 2012, 6:27 pm

              Yes, I believe that. Theoretically anyway, it can be done. It can even be done for less than $25k.

              The question is: Will it be done? Currently, frugal behavior is outside the mainstream and it requires “surplus capital” (social, intellectual) to adopt such habits in the face of what advertising and cultural norms tell us.

              In general, people who have such surplus capital also tend to be able to make above average money, whereas people who don’t have it make below average money.

              Hence, ironically, those who need the least to be frugal (not cheap) also have the easiest way of being so (access to blogs, books, information). Conversely, those who are struggling probably do not have the surplus energy/resources to spend time after work educating themselves to spend their money better.

              This is really an age-old question and not easily solved. As a [former] blogger, my hope was that people who do have the time to read blogs such as this will start living in a more frugal way. Their life will then be copied by people who struggle more because they don’t have the time to learn from blogs.

              Keep in mind that we’re not doing anything that is overly complex from the perspective of our [depression era] grandparents. The only hard part about it is living in a way that our peers are not. And furthermore, that thanks to technological improvements, we’re at least four times as productive as back then and thus four times richer in terms of standard of living.

              So yes, a modern family of four can have it way better on 25k than the same family spending the same [inflation adjusted] money did 75 years ago. The question is, do they know how? And unfortunately, the answer is, no they don’t.

            • Mr. Money Mustache November 6, 2012, 9:37 am

              Indeed, Flames shot out the tips of my Mustache when I read Moose’s comments suggesting that $25,000/year was insufficient for happiness!

              But Jacob is right: with no training except that which they see on TV, people are unlikely to be able to live happily on that amount. The system is rigged against them – they assume that frequent car travel is a necessity, for example, and that buying a new one on credit is a reasonable way to get that car. Some of my foodstamp-level neighbors drive daily for every single errand – everything is within 1-2 miles from us. The number of unnecessary cash leaks in a modern life are just mind-boggling, once you have been taught how to see them.

              How can we get the information in front of the people who need to see it, in an accessible way that is not overly technical? Obviously blogs like this are just a sliver. I did some stuff on CBC radio that reached a bigger audience. “Your Money or Your Life” was great but I felt it was a bit shy and introspective, limiting its appeal.

              If this MMM television show I hinted at earlier were to come to fruition and become a popular let’s-all-beat-the-system cultural meme, would that do the trick? Or would it be cancelled by the network executives who depend on ridiculous consumerism to pay their bills? Would cancellation just get the show even more attention as it moved to YouTube where it can never be cancelled? :-)

          • lurker November 5, 2012, 4:06 pm

            don’t want to be buzz kill downer but what if cheap energy has allowed huge overpopulation problems due to unsustainable agriculture. $10 gas might mean massive starvation in certain places around the globe….food from cheap energy might disappear faster than we can adjust to permaculture and organic agriculture… i sure hope not but seems a possibility to me

            • Alex | Perfecting Dad November 5, 2012, 4:54 pm

              Population is the planet killer. Things don’t change in a second though. People can adapt, move, adjust. If we consume 85M barrels per day now, a shift in demand by a few percent could result in doubling oil prices, but a similar drop in demand could result in halving. Everyone can and would adapt their consumption to move the oil price to an acceptable place. To think otherwise is like the doomsday crowd believing that people will drown as sea level rises over the next century due to climate change.

          • Alan November 5, 2012, 4:20 pm

            Petrol in the UK is currently $8.15 per gallon. That’s for your gallon, which is smaller than ours for some reason.

          • ddrem November 5, 2012, 6:40 pm

            First off, thanks for taking the time to respond to me again. However, you didn’t address a single point I made in my previous post. I understand that you’re busy, and I’m not sure you followed my line of reasoning for why people should understand that the effects of Peak Oil could extend beyond their bank accounts and into their everyday interactions with others. It all seems like a logical extension of Jacob’s quote: “Those who don’t prepare at all, rely entirely on pulling out their credit card and buying their way out of all their problems are likely to crash hard when gasoline prices cross $10/gal. I say this with a P90 probability.” However, neither you nor Jacob followed up on what this might mean for our daily lives, and I tried to fill in the blanks. If I’m wrong, I’d very much like to be corrected.

            • Early Retirement Extreme November 6, 2012, 8:59 am

              I’m sure you’re familiar with Orlov’s five stages of collapse. If not, please read them. The question, then, is to which degree will society collapse. If it stays below the first stage … what we could call the zero stage of economic depression, or “economic collapse” those without savings, job stability, or other incomes are going to suffer “first world problems” (like not being able to afford cable TV or having to move in with family because they can’t afford rent) but they are not going to go out looting because social order hasn’t broken down.

              I believe collapses are cascading. The faster a collapse, the deeper it can easily go. However, I think oil is a sufficiently slow problem for the average person to remain oblivious to the real underlying cause and instead blame it on other things like “that other political party”, “wall street”, “lazy people”, “foreign people”, etc. In other words, rising energy costs are going to put a lid on real GDP. Prosperity will be harder to achieve. And most won’t have clue.

              What does this mean for “our daily lives”? It depends. What does the current economic depression (double or triple recession, whatever) mean for our daily lives? Those who prepared and saw it coming became even richer buying up cheap housing and stocks with cash. Those who didn’t moved in with family. iPhones have replaced cars as status symbols. I sense that being debt free is beginning to replace a big house as a status symbol. Little changes.

              If change is slow, those changes are going to move people’s reference points slowly. Then new changes won’t seem so bad. Think of the boiling frog problem. A frog being slowly boiled is not going to riot. In fact it might be selling spa-tickets to its fellow frogs and getting rich along the process. Humans are the same way. As long as it’s slow enough.

              I’m not sure if you’re looking for some “your neighbors are going to steal your solar panels off your roof so they can continue watching Law & Order on TV”-answer. However, this problem (of increasingly expensive energy) has been going on under the surface for over a decade. Back then oil was still under $40/barrel. Now it’s more than $100. How have people changed since then?

  • Oliver November 5, 2012, 11:45 am

    The amount of possible variables boggles the mind. One interesting variable not discussed here is the concept of peak rare earth metals. It turns out that there are also a finite amount of the rare earth metals that are crucial to producing solar panels, wind turbines, batteries and all sorts of gizmos. And, you guessed it, the easy to find rare earth metals are mostly gone. Combine that with the extreme energy density of oil, I imagine it will be very hard to replace oil with so-called “renewable energy.” Fortunately, most MMM readers are comfortable with the only real solution – use much less energy.

    • Gerard November 5, 2012, 12:10 pm

      Using much less energy also lets people (potentially) take advantage of versions of solar, wind, etc. that don’t need any/many rare earth metals. Small homes, passive solar, and good insulation can deal with most of your heating and cooling issues, and a bike will get you most places you need to be, leaving you needing actual energy-energy to power electronics (which are not very hungry, and can become less so) and to travel great distances (which people may do less and less… meaning we’ll have to prioritize being near loved ones and food and work over exotic vacations and business travel).

    • peter November 5, 2012, 12:13 pm

      “Fortunately, most MMM readers are comfortable with the only real solution – use much less energy.”

      !!!!!!!Agree whole heartedly!!!!!!

      Every person in the first world is going to have to do this when their bank accounts and savings dwindle to alarming levels with the price of energy combined with the energy choices they make. They will be knocking on our doors to learn how to do what we’ve been doing for years. Very forward thinkings these MMM readers!

    • Jamesqf November 6, 2012, 10:30 am

      “…the easy to find rare earth metals are mostly gone.”

      Not really true. First, the so-called rare earth metals aren’t all that rare. Second, there are known deposits, even former mines in the US that have closed because the Chinese flooded the market. Third, unlike fossil fuels the rare earth metals aren’t just dug up and burned: they’re used in devices which can be recycled when they wear out. And fourth, there are always substitutes.

  • Tara November 5, 2012, 12:03 pm

    My SO and I were just talking about this today.. how we could reduce our reliance on electricity/gas to get our energy bills way down or get off the grid completely, move to a rural area where we could grow our own food, in a place with very low property taxes, access to water… living in downtown Montreal is extremely expensive, what with condo fees, property taxes, and having to rely on all our food & energy being delivered to us, seems risky for the future what with peak oil and all that… a good topic with lots of food for thought.

  • peter November 5, 2012, 12:05 pm

    Interesting article. A couple of comments from someone working within the oil and gas industry:
    (no offense intended as I am referring to our general population and not mustachians)

    1. Calling them “tar sands” is a dead give away as to how you feel about oil consumption. They are called oil sands by corporations and politicians who support them and realize their criticality in supporting our currently ghastly excessive lifestyles. They are called tar sands by those who wish they would go away but aren’t quite prepared to give up on the luxurious lifestyles that cheap oil affords them. Curiously, these are the people that want to block new pipelines from being built….the result of which is that oil is now increasingly transported by rail (much more likely and common to have spills this way never mind way more energy intensive to transport).

    2. “natural gas from fracking shale (a kind of underground tar)” is PURE and UTTER BULLSHIT. Shale is NOT tar but mudstone (silt and clays). Geologists have always known that hydrocarbon reserves existed in this stratigraphic layer but only recently with technology has anyone been able to make economic production from it (hence the recent roller coaster ride on gas prices from >$10/mcf down to $2/mcf). This single choice of calling this underground tar has thrown this discussion WAY down in credibility and has thrown it into the realm of political rather than analytical. By the way fracture stimulation is NOT the new technology as it is used in 9+/10 gas wells and has been for decades.

    3. It is really deep and dark down there, but reserve estimates in known accumulations are not nearly as imprecise as ERE would have you believe. The error bars will be larger in new discoveries and exploratory plays, but still become MUCH smaller after only a few more data points are obtained. There are LOTS of methods for determining hydrocarbon reserves MUCH more accurately than is implied here.

    A very interesting read and thank you MMM for putting this together. I do believe that you have obtained a lop-sided information set from ERE though.

    • Gerard November 5, 2012, 12:14 pm

      Yes, they’re called oil sands by people in the industry and supportive politicians and media. And everybody in Fort McMurray. But they’re called tar sands by pretty well everyone else (whether they live extravagant lifestyles or not). Google Trends shows a hilariously lopsided distribution in the use of the term “oil sands”. Hmm, maybe I can get a sociolinguistics paper out of this…

      • peter November 5, 2012, 12:43 pm

        Gerard, very interesting indeed. Oil sands being the predominant term in 2006 and finally overtaken mid-2011 in the US. Very obviously the term is gaining popularity. Very similar usage over the last year. Not sure where you get the idea that they are called tar sands by all non-politicians and oil workers…

        Very interestingly in Canada, the term tar sands has not ever come close to as popular and is clearly not gaining traction.

        • Alex | Perfecting Dad November 5, 2012, 4:39 pm

          I work in Alberta and the “branding” is oil sands, but the word tar is more descriptive. There is even a place near Ft Mac called Tar Island. I’m being a bit silly, but the oilsands work should be applauded by environmentalists since it is really a huge oilspill cleanup operation! In my mind, advocates need not get worried by the term tar vs oil.

    • Early Retirement Extreme November 5, 2012, 1:59 pm

      Oh no… lost on a technicality. Look, what matters to those of us who do not work directly in the oil & gas industry is not the specifics of the underground geology (I’m no geologist) and what is known internally in the companies or whether it’s called oil sands or tar sands, but what is reported to the world outside, namely to politicians, investors, and consumers.

      In other words, what I care about is systemic problems arising from a lack of communication between the different specializations. Not technicalities.

      I’m sure that internal engineering estimates are pretty accurate. I’m also sure that management’s powerpoint presentation of future reserves given to the public is not.

      The oil & gas industry has a conflict of interest in that they can not maximize their ultimate profits if they come out and say that their product—and by implication, machines that run on this product—will be obsolete or at least very expensive to operate within a few decades. Customers would abandon (as far and fast as possible) the fuel source for other energy sources in anticipation of future price increases.

      It’s good business strategy to pretend that your product is in practically infinite supply when there’s an almost complete buy-in on your product while at the same time there’s the potential for a substitute. This is simply protecting one’s turf. It’s a terrible strategy (for the company) to come out and say: “Look, from now on the price of our product is going to keep increasing and the supply will begin to decrease, but please stick with our technology, eh?”

      This conflict of interest is aided by the SEC and the OPEC rules.

      I went to an energy conference in 2004 and asked a few industry insiders after their optimistic presentations (during lunch break). Well, it turns out that at least unofficially, they’re aware of the peak oil issue. Some companies have tried to cast themselves as “beyond petroleum” as more general energy providers. However, overall nothing has happened.

      I think this is yet another case (tobacco, ddt, seat belts, beach front property, …) where individuals and organizations need to be informed lest they make poor strategic decisions.

      That’s all.

      • Alex | Perfecting Dad November 5, 2012, 4:47 pm

        I think the sign that oil and gas are nearly infinite in quantity is the price. Gas is practically free and oil in North America is much cheaper than oil elsewhere because of the technology and glut. Elsewhere in the world gas and oil are still expensive as it was, but the technology will transfer. The US is becoming an exporter of gas now, and will possibly become an exporter of oil. It is an exporter of refined products, which is one reason why gasoline prices are the higher global prices even as North American crude prices are low.

        • Andrew November 5, 2012, 8:42 pm

          Uhhhh, what? It’s news to me that price is dictated by the stock of something. By that logic, silicon should be free!

          Oh wait, it’s the flows in useful forms compared to demand that sets prices? I guess an infinite amount of oil didn’t appear after the oil shocks of the 70s after all…

          (Also, it is probably best to avoid using a metric that is manipulatable to gauge engineering realities.)

          • Alex | Perfecting Dad November 6, 2012, 2:19 pm

            Price is created by the balance between supply and demand.

            US used to import 9M+ barrels of oil per day and imported natural gas. 9M is about 10% of the world’s daily production. North American production is growing for the first time in decades and it may become oil independent in not too long.

            US is also going to export natural gas imminently, again switching from importing to exporting because there is an immense domestic supply.

            That’s why the price for both oil and gas is very very low. Because there is a “useful supply” and more coming due to technology unlocking access to huge reserves.

            Not sure where you disagree, or even if you do …

    • Mr. Money Mustache November 5, 2012, 2:41 pm

      Whoa there, Peter.. I wasn’t even AWARE that there was controversy as to whether you call the stuff “tar” or “oil”. They both sound nice to me. Remember, I don’t watch TV or read anything about the day-to-day arguments among the politicians. So you can’t call out political bias based on that word choice. And I’d tend to believe Gerard (the linguistics professor)’s analysis anyway.

      I think of oil consumption not as a political issue but a scientific one. I don’t care who makes more money or gets more research grants one way or the other. But I seek to understand the pros and cons of consumption from an economic and ecological perspective, and right now the scientists are telling us that we use too much of just about everything.

      If I have an ideological agenda (and I do), it’s to speak out against things that are bullshit. And waste due to ignorance (like commuting 40 miles to work in an SUV) is pure bullshit. So is much of our other consumption, focusing on stuff rather than happiness. Waste of this sort offends me personally, it makes me punch things, and so I write about it.

      Not everyone likes my strong feelings against inefficiency.. but luckily they are not forced to read this blog!

      • peter November 8, 2012, 1:06 pm


        I’m here reading your blog and have been for a long time because I am very mustachian by nature regardless of my career in the oil patch. I don’t own a car, commute happily through cold winters on my bike or walking with occasional visits to public transit. I have a wife and kids at home who also appreciate the rewards of realizing the differences between material needs and wants as well as money not equalling happiness. We are midway to our financial freedom.

        I have great appreciation for what you have going here and believe that the world is going to have to catch up with this set of ideologies. I very much agree with being as efficient with energy/money as possible and I do my share in this regard (constantly trying to improve of course;).

        My career started in technology until my end of the world never recovered from the tech bust in 2000/2001. I switched ‘geers into the oil patch at that point and now have the opportunity to work in an industry that few people understand but all have an opinion on.

        If everybody started treating energy like MMM and the mustachian following, then I would likely be out of a job but would still be over the moon in delight. I do this work because it currently needs to be done. People are still burning fossil fuels at an alarming rate despite large price increases. I believe it’s better to meet these demands locally than ship oil across the planet.

        Just as most of our population lives in houses that are as energy efficient and environmentally friendly as local codes require, most energy companies will do as much in these same regards as local codes require. It is hard to convince the average home owner to spend large capital upfront to reduce the long-term costs even if the economics prove it without a shadow of a doubt (mustachians get this). This again is very similar to energy companies. I have the rarely-used ability in my job to allow me to sway the money-approvers to go with more efficient and environmentally friendly methods of doing their business. It is incredible how almost all of the right choices in this matter are also financially superior! I am very proud of working for an energy company now that brings up the average significantly with respect to energy efficiency and environmental responsibility.

        Sorry if my previous comments were a little strong, but it is a constant frustration to hear misinformation circulating. Even if these misnomers and misconceptions are not realized or intended, it builds on itself and references itself until common perception has little to do with reality.

        One more parallel before I go: Just as a typical house built in 2010 is incredibly more energy efficient and environmentally friendly than one built in 1950, the way oil and gas is produced, transported and delivered to consumers in North America has changed much more in that same time frame. Fossil fuels are available and being used by consumers whether we like it or not. I would encourage everybody I can find to make use of non-fossil fuels as much as possible and use cleaner more environmentally responsible energy for their lives. I teach my kids this and lead by example. Energy = money and we should all be as frugal with it as we can get away with.

        Great blog MMM as always.

  • MP November 5, 2012, 12:35 pm

    And here I thought the next MMM post would be about those people pushing their $50,000 SUVs into gas stations in NY and NJ.

  • RW November 5, 2012, 1:53 pm

    feeling defensive are we? MMM and ERE never claimed that tar sands were bad, you claimed that they were. Pipe-lines were not even brought up and the subject of the Oil sands EROEI was only obliquely referred too. I think you need step out of your complainy pants and try on a chill Mustachian lumberjack shirt and pants, comfortable and utilitarian to boot eh? This was as fair an article as your could possible hope for.

  • Dom in Canada November 5, 2012, 1:56 pm

    I only skimmed the analysis for now, but I want to highlight something that MMM touched on briefly: the reason why fossil fuels are being used at all is because almost nothing else in the world is as ENERGY DENSE as oil, in terms of kJ/L.

    I’m just going off of memory from my 4th year alternative energies course, but the only thing that has a higher energy density is hydrogen fuel, save for nuclear.

    Using renewable sources for ELECTRICITY makes sense and should be encouraged, but you will probably never see a commercial airplane run solely on solar power or batteries.

    Something my prof touched on that I has always stuck with me. Throughout human civilization, we have been using energy sources with high carbon content to less carbon. Wood > Coal > Fossil Fuel. Each step takes about 200 years to the next. The next stage on the progression is Natural Gas, and following that, a carbon-free source (nuclear).

    Anyways, peak oil is not something that I am losing sleep over. Worst case scenario (for my lifetime at least), I see motor vehicles in North America switching over to natural gas combustion engines.

  • Jamesqf November 5, 2012, 1:58 pm

    “I remember seeing a few years ago how climate change models actually did not include any realistic components for the decline of oil use.”

    You’re wrong about this. Climate change models going back to Hansen’s seminal 1988 paper include scenarios assuming a leveling off of CO2 emissions. (Hansen’s scenario C). The problem seems to be with your assumption that declines in oil* use are in any way realistic. To date, at least, they’re a long way from being realistic. Actual emissions have tracked Hansen’s business-as-usual scenario B fairly closely.

    (*Or more accurately, fossil fuels in general, since the atmosphere does not care whether any particular added CO2 molecule came from oil, coal, or natural gas.)

    • Early Retirement Extreme November 5, 2012, 2:14 pm

      Well, in that sense, it’s been included all the way back to the 1970s in the World3 model by the Club of Rome which includes a model (equation) for resource depletion. I’m talking about detailed studies that include the sum of declining production rates; not parameter studies.

      • Jamesqf November 5, 2012, 8:17 pm

        Sure, but you’re still ignoring the question of what’s a realistic model of fossil fuel use as a component of a climate model. I say a “business-as-usual, burn everything that’s economically recoverable” is the only realistic assumption, as it matches both past real-world experience and knowledge of human psychology. Sure, black swan events are always possible – a regional nuclear war, a major plague knocking down the population to a small fraction of current numbers, benevolent aliens coming to solve our problems – but “and then a miracle happens” is not sound science.

        Which is yet another reason to be glad I don’t expect to have offspring, since the most likely end result of this is a repeat of the Permian-Triassic Extinction.

        • Early Retirement Extreme November 6, 2012, 8:15 am

          To be more specific, what’s not included [in climate change models] are oil production models that are based on typical production decline rates instead of optimistic “we can always find more and will do so” or “we will politically agree to curb it”. My point is that climate change might have received some help from the decline in oil production. Of course, gas fracking and coal could render this irrelevant.

          • Jamesqf November 7, 2012, 11:07 am

            Maybe because the production rates are not important factors? The basic assumption is that either all recoverable reserves will be dug up and burned, or that production will be stopped at some point (either politically or through replacement technology).

            The rate of production doesn’t really matter in climate-scale predictions, because CO2 is removed from the atmosphere so slowly. Burn all the oil in a decade, or stretch it out to a couple of centuries, the end result is the same.

  • Alex | Perfecting Dad November 5, 2012, 4:31 pm

    I’m in the energy business as well. Glad to see people are interested in this topic. Some parts are complex, but others are kinda simple.

    Some points:

    The big problem, far worse than the inevitability of peak oil, is population growth. As long as there is exponential population growth within a closed environment something very bad will happen eventually.

    US has logged the largest CO2 reduction over the past several years due to cheap natural gas and coal conversions. This is not as a result of subsidies or market manipulation just an economic decision. This should point away from subsidized green tech and towards a carbon tax. Much of Europe has achieved CO2 reductions by moving the dirty manufacture segments of their consumption away — they just import dirty products instead of manfuacturing them. That said, North Americans have the largest environmental footprint in the world by a huge margin.

    Peak oil is inevitable, yes, because there is necessarily a finite amount of resource, but this resource is massive. There is shale oil (North America will likely soon be energy independent or even an exporter), horizontal drilling, shale gas, methane hydrates, coal and gas to liquid. Hydrocarbons are getting cheaper to recover, not more expensive. We have essentially unlimited oil, natural gas, and coal combined. These are interchangeable over the medium term.

    EROEI is a nonsense concept as far as decision making goes. Every energy conversion process has a negative EROEI. Consider solar: A panel takes solar energy and convertis it at about 15% or 20% effiiency. Therefore solar panels have an EROEI of far less than one, except we don’t value the solar input so it doesn’t count … that solar input would be wasted normally. It’s the same with other energy. If we invest energy that is not valued to get an energy form that is highly valued, then the economic decision is easy. The oil sands, for example, use a lot of natural gas to get oil. This is a relatively low, though still positive, EROEI process, but highly valuable economically. If the economics changed then the processes would also change. But of course it is true that if a human spends 2 calories to get one then eventually the human will wither and die. But if a human spends 2 calories of free non-food energy (from the sun, the plants, etc) to get a calorie then the human prospers.

    There is no such thing as “converntional reserves” though the words are commonly used. Conventional means “the easy stuff”, except today’s converntional wells were anything but in the old days. Just like the somewhat newer horizontal and stimulation practices of today will be commonplace before too long. Conventional in the past meant oil out of a whale’s skull while mineral oil was crazy!

    I can’t wait until solar power reaches economically competitive levels. Wind is already there by wind blows at night. Nuclear is too, but for some reason governments are shutting down emmission-free nuclear plants to start up natgas or coal plants. Solar is the real champ in terms of availability, timing, portability, etc.. All fossil fuels are captured solar energy anyway! Cheap solar is the prize.

    I think that climate change is probably too far gone to reverse with conservation measures and we’ll have to get into geoengineering before too long. Hopefully there will be a tech to scrub carbon out of the air efficiently developed soon.

    Nice article. Sorry about the spew!

    • Andrew November 5, 2012, 8:26 pm

      I think you fail to grasp the point of EROEI. You described the efficiency of solar panels: of the (uselessly diffuse) solar energy input, 15-20% is converted to electricity, which can be converted to useful work. The proper comparison is to the efficiency of an internal combustion engine: of the (uselessly liquid) energy stored in the chemical bonds of the hydrocarbon molecules, 30ish% is converted either directly to useful work or indirectly through electricity. On that basis, hydrocarbons and solar are comparable.

      EROEI is the ratio of total “valued” energy input to total “valued” energy output. Thus, the proper comparison is between the total fossil fuel energy input to manufacture a solar panel divided by the total electrical energy produced by the solar panel over its useful life, vice the food energy required for Jed Clampett to shoot at some food divided by the chemical energy in the bubblin’ crude. There is no contest.

      • Alex | Perfecting Dad November 6, 2012, 2:10 pm

        I think I get the concept of EROEI, but I fail to grasp it’s usefulness. So you are right when you say “valued” energy, and the key is in the valued part of that mention. All energy is not valued equally. You discount the value of the solar because it isn’t worth anything to you. I would wager that you actually do value solar energy, just not very much because there is a huge abundance of it. For example, you would not cover the entire sky with solar panels if that were possible.

        EROEI is not useful for decision making because it values all the energy equally, actually two prices. A “desirable” energy and a “free” energy. All “desirable” energy is worth equal and all free energy is valued at zero.

        Efficiency is a useful metric, as is money-based ROI with the right costs, but EROEI is not useful.

        Your comparison of panels to oil is ok, but there are easy to understand scenarios where bubblin’ oil at good EROEI is not the better choice — as environmentalists would point out. For example, what if electricity were more valuable than oil, because there was no way to convert oil into electricity and there was a surplus of transportation fuels. Then the solar panel, at a worse EROEI, would be the smarter choice. Even if the EROEI was less than 1, if the energy input was oil, then the choice might still be smart.

        • Josh November 7, 2012, 11:05 am

          To understand the huge importance of EROEI, read the post on the Energy Trap — http://physics.ucsd.edu/do-the-math/2011/10/the-energy-trap — at the Do The Math blog.

          It’s a big issue — peak oil scale — with far-reaching effects, but not easily explained. His blog does a great job.

          Solving it could be challenging.

          • Alex | Perfecting Dad November 7, 2012, 1:29 pm

            Read it a long time ago. Murphy has great posts, but he’s not an economist, so he applies the wrong logic. Physical logic applies to the concept of peak oil … there is necessarily a finite amount of fossil fuels on the planet. He then adds in a few explicit and implicit assumptions that make a seductive argument but he doesn’t apply any prices nor does he imagine the impact of technology (and how could he, if it hasn’t been invented).

            It is hugely obvious that every resource will be exhausted at some point due to entropy. Everything will eventually become a useless slab of cold “average”. There IS no way out of the trap ultimately, only pushing the inevitable out. Therefore the question is not whether there will be pain, it is when the pain will come.

            Economists know that current happiness is better than future happiness. Anti-carbon people seem to be advocating a “experience the future pain today” plan, while the people with blinders on just assume that all problems will be solvable in the future. There is a balance in there somewhere. If you have wealth and the costs are reflected properly (which they aren’t right now) then prices will dictate the right decision. People will automatically decide how much they want to consume or conserve now, and technology will be developed at the right time. Another problem is how to value future generations. Some people say that these are pricelesss, while others say that they should not be considered.

            Have a look at the history of fossil fuels. You’ll see that fossil fuels actually saved a filthy and environmentally devastating, highly unsustainable society — adding a century or more of comfortable living. We’re due for the next wave soon. Murphy views everything very simply (and sophisticated on other dimensions at the same time) and just assumes that all energy forms are worth the same and that technology will be more-or-less the same through time. Just consider solar energy. That potential is gigantic, if we could tap it well.

            • Josh November 7, 2012, 2:11 pm

              Hmm… not sure I see the relevance of what you wrote to the Energy Trap.

              I still find the Energy Trap convincing and serious and EROEI an important and relevant measure.

            • Alex | Perfecting Dad November 7, 2012, 3:21 pm

              My point is that prices drive decisions, not EROEI, and the two aren’t connected. Why do you find the energy trap so convincing and why do you think EROEI is so important?

              Why, for example, are there many different levels of EROEI and payout horizon sources being developed at the same time versus the quick-payout priority that he predicts? Why wouldn’t people in control of the resources make investments with an eye to maximize long-term profits/benefits in mind as they do now, investing huge in mega-projects like dams or oil sands or nuclear facilities with a decade-long start-up horizon?

  • Derek November 5, 2012, 4:36 pm

    You two should start a podcast together. Mustache Extreme.

    • Freeyourchains November 7, 2012, 1:28 pm

      Yes, make sure to leave out “retirement”, just kidding, refering to Jacob’s latest post.

      “Early Badassity to the Extreme”

  • rjack November 5, 2012, 6:35 pm

    MMM and ERE are my two favorite bloggers. I hope that they collaborate on many more posts because I think they have complimentary ideas. ERE tends to be at a strategic level while MMM focuses more on tactics.

  • Doug November 5, 2012, 9:07 pm

    The debate goes on of whether we are past peak oil, or it’s many years in the future. In any event, as all the easy to extract oil gets depleted the price goes up and makes the more expensive stuff (Alberta bitumen sands, shale oil, deeper offshore oil rigs) more worthwhile to extract. Human ingenuity will find better ways to extract the harder to access oil, as well as finding ways to use it more efficiently as prices rise. That’s not something that’s coming in the future, it’s happening now. Thus there’s no need to worry about the world suddenly running out of oil.

    The only real problems worth worrying about are climate change, and how poorer people are going to handle higher costs for food and other necessities of life as a result of higher oil prices. By now, we are all aware of the mess left by Hurricane Sandy. If the climatologists models are correct, such destructive extreme weather events are going to be more frequent in the future as a result of climate change.

  • Kana November 5, 2012, 9:41 pm

    Great topic. You may want to review the attached U-Tube video relating to the exponential function. It is a presentation by a Physics Professor at the University of Colorado, Boulder. It talks about energy, population and other topics. Very sobering…. It discusses mathematics applied to growth. It has eight parts – long, but very interesting. This shows that mankind will likely consume fossil fuels much more rapidly than most expect. Perhaps other technologies will help, but likely not enough and fast enough. I worked in nuclear power for years but do not see that industry rebounding fast enough to replace aging nuclear power plants – no less expanding their gross power generation. Gas, wind and solar will help defer the crisis. My take on this is that we have a few good decades left, then some real tough choices. And I tend to be an optimist (really). http://www.youtube.com/watch?v=FQA2rkpBSY&feature=list_other&playnext=1&list=SP6A1FD147A45EF50D

    • Jack November 6, 2012, 2:13 pm

      The trouble is that population growth is logistic, not exponential. Japan and parts of Europe have already hit their asymptote, and the U.S. and the BRICs are well on their way.

      • Doug November 8, 2012, 9:26 pm

        That’s good news if there ever was. A flattening population may not prevent disaster altogether, but could mitigate its effects.

  • Carl November 5, 2012, 10:35 pm

    Thorium. It’s about as plentiful as lead and a musket ball sized piece has enough tappable energy for one human’s lifetime energy use. The technology to use it is half a century old. The only real question is whether an unstable country like Iran can be trusted to use it. How easy is it to build a Bomb with U233 bred from thorium? Most countries which are north of easy solar already have the Bomb so perhaps the issue is moot.

    With enough electricity from thorium or solar cells, you can ditch carbon fuels for all but transportation. End the drug war, the mortage deduction and have school vouchers; and families will move back to the cities, reducing transportation needs substantially.

    And with enough nuclear power, we can synthesize the carbon fuels needed for transportation if need be.

  • JCamasto November 6, 2012, 1:07 am

    For those in the thrall of techno-utopian optimism, here’s some counterpoint from a physicist “doing the math”…


    • Oliver November 6, 2012, 1:38 am

      Haha – I’ve been searching for someone who mentioned Do the Math.

      I’ll second this – Tom Murphy is probably the best guy writing on the net about this at the moment. He’s a physics professor, so he’s all about the numbers. Like MMM he has no tolerance for bullshit.

      Worth checking out.

    • Josh November 7, 2012, 11:00 am

      I third the Do The Math blog — physics.ucsd.edu/do-the-math — and I’ll add more to attract readers to it.

      Its writer, Tom Murphy, got his physics PhD at Caltech and teaches at UCSD. His academic credentials are solid.

      He also built his own solar energy setup. He monitors his energy use like MMM monitors his money use and publishes the results. He takes the bus and rides his bike to work. So he lives energy like MMM lives financial independence.

      His Do The Math principle says you should talk about quantifiable things with quantities you can back up, not just guesses or opinions. Among the things he’s covered

      – For a wide variety of potential energy sources, he figures out which are possibly useful, which are borderline useful, and which are marginal or worthless. He does the math and shows his calculations.

      – He presents an important concept he calls the Energy Trap, as important as peak oil, based on EROEI. It shows that the decision to invest in lower EROEI technologies when the higher EROEI supply is decreasing, since it requires reducing the energy we get from the dwindling higher source, will be very difficult — politically untenable most likely. He does the math and shows his calculations. http://physics.ucsd.edu/do-the-math/2011/10/the-energy-trap

      (Know and understand the energy trap. It’s fundamental and far reaching).

      – He shows the results of many personal household experiments in measuring and reducing energy use. He does the math, shows the equipment he uses, and shows his calculations

      – He treats some economic issues, particularly challenging a common expectation among economists that energy will keep getting cheaper and more plentiful. He shows a conversation he had with a prominent economist who didn’t understand how physics related to energy. Very eye opening.

      A lot more. After reading his blog, you lose patience for discussion on quantifiable issues without doing the math.

      If you like MMM and care about energy and the environment, you’ll appreciate Do The Math. physics.ucsd.edu/do-the-math

      • Three Wolf Moon February 21, 2014, 12:35 pm

        I respect Murphy’s writings and like all that he has done with alternative energy, however I do want to point out that the analysis he does in the Energy Trap post leaves out point 4 MMM makes in his post – that increasing price of energy will result in reduced demand. The “Trap” is based on an increasing or constant demand for energy as supplies reduce. However, basic economics indicates this will raise the price of energy and therefore reduce the demand. Yes, for those versed in economics, the price elasticity of demand for energy is fairly low in the short term, however as prices remain high people do adjust their behavior to consume less.

        I believe this will make the “Trap” non-existent, as the smart folks with access to lots of capital around then will recognize the diminishing supplies and pay the increased prices to invest in renewable energy resources for the future payoff. Yes, this will cause even further price increases in the short term – which in turn will cause consumers to further reduce demand (more bicycle riders!) allowing the available energy supplies to be invested in alternative sources contrary to Murphy’s analysis.

  • CanuckStache November 6, 2012, 7:53 am

    Very informative article. I personally think gas should be expensive to effect change. I never understood how people think it’s worth it to live in the ‘burbs where you can’t even walk to a single store, instead opting to have to drive 10 miles to get to anything. Let alone commuting an hour or so to work.

    It’s the same concept as Chris Rock’s comedy routine where he says let people buy all the guns they want, but make bullets cost $5000 a pop. Decrease in gun crime overnight!

    Personally, I’ve got a gas-guzzling SUV and I love it. But I work from home, and use it maybe a few times a month. For me I like it because I enjoy getting off the beaten track and camping in remote areas where the 4×4 comes in handy. But if I had to gas that thing up more than once a month? Fuck it!

    • Jamesqf November 6, 2012, 10:47 am

      “I never understood how people think it’s worth it to live in the ‘burbs where you can’t even walk to a single store…”

      Sounds like an advanced case of consumerism to me. Though I live in the country, not the ‘burbs, I might go to a store once a week or so, but I go out hiking, biking, skiing, horse riding, &c practically every day. (Work is irrelevant, since I telecommute.) So it’s simple optimization: when stores are not all that important, or frequently visited, why should I want to live near them – especially when living near them means increased crowding, higher housing costs, lack of pleasant natural environment, and more?

      • Mr. Money Mustache November 6, 2012, 1:21 pm

        James, your ideal Mountain Man lifestyle is one thing, and it’s well thought out. But CanuckStache’s point is totally different: most people who live in far-flung suburbs still pretend they have access to the entire surrounding metro area, and do everything by car. This usually ends up being a terrible choice once the math is done on all of it.

        If I lived in the suburbs, it would be a hybrid lifestyle – I would enjoy the cheap housing, plentiful internet access, access to other adults to drink beer with who have little kids to play with my boy, sufficient land for gardening, and relative quiet… but still not drive anywhere, since there are very few suburbs beyond biking distance from a grocery store. The ‘burbs are not all that bad – as long as they are not paired with commuting and a cars-only mentality.

        • Jamesqf November 6, 2012, 8:59 pm

          Agreed. The problem is the locked into cars mentality: the idea that because it’s POSSIBLE live in place X and spend an hour or two every day driving to and from place Y for work, that doing so is a good thing. Could be usual driving from suburb to city, or as is more usual in say Silicon Valley, driving from suburb X to suburb Y. It could even be the case of a couple of forum posters, who spend the time driving from urban home to distant but still urban work.

  • Freeyourchains November 6, 2012, 10:42 am

    ERE is great, I found Jacob’s blog after reading my first FI book which changed my spending lifestyle. After reading most of all of Jacob’s posts and seeing him go back to change humanity, he recommended your blog and so i stopped by to check it out and got hooked.

  • Nick November 6, 2012, 3:34 pm

    Any chance you can make your blog more memory-efficient? I use a virtual machine for web browsing at work and it only has 512MB of ram. When I have your site open it brings all my tabs to a crawl. Even as I type this it takes about a second for each keystroke to register. Scrolling is much worse, on the order of 3-5 seconds to respond. It seems to be proportional to how many comments there are on the article because your older ones work much better.

    Not complaining, just letting you know.

    • Mr. Money Mustache November 6, 2012, 6:19 pm

      You could try reading it with an RSS reader or turn off the graphics on your browser perhaps? Since the blog loads fine on my 2007 desktop computer, antique laptops, and even my telephone, it would seem a bit counterproductive to try to tweak it for such a small percentage of readers. Graphics and glitz are important here, for we are not Craigslist or Early Retirement Extreme – the goal is to keep a mainstream accessibility with eye candy to suck people in. :-)

      • Early Retirement Extreme November 6, 2012, 7:56 pm


      • Nick November 8, 2012, 11:46 am

        Figured out the memory problem. My browser just doesn’t do well with all the javascript you’ve got on your site. A simple firefox add-on to disable javascript on any given site did the trick. Just thought I’d post my findings here in case the people of the future want to know.

        • DuckReconMajor September 11, 2018, 8:49 am

          Thanks! I actually had a similar situation to yours a few months back, what I ended up doing was using Firefox’s Reader View (which I never thought I’d use) on everything, which helped tremendously.

  • Marlene November 7, 2012, 4:09 am

    Hey there!
    Thanks for another post that breaks down a complex information whole down to something I could explain to my neighbours! Also thanks for sticking with the discussion!

  • Al November 7, 2012, 6:08 am

    Very informative read, as usual.

    It seems that graphene holds great promise as a means of seriously reducing power consumption in sorts areas. Still a long way from mass production, but looks very promising.

    But most of all, as you suggest, reducing consumption in general would have an enormous impact on our energy outlook.

  • Josh November 7, 2012, 11:15 am

    Regarding “people who specialize in each of these fields seem to lack sufficient knowledge in the other areas to be able to predict the complete outcome” …

    two (in my opinion) great books that treat these issue from many perspectives are

    Sustainable Energy Without The Hot Air, but David Mackay, a Caltech trained physics PhD who teaches at Cambridge University. He asks if the UK could supply all its own energy renewably, then quantifies his research. He considers all major energy sources, pros, cons, etc. Though it’s about the UK, the underlying research and philosophy applies everywhere. You learn a lot about all major energy sources, pros, cons, supply, demand, implementation, etc.

    Plus the book is free for download — http://www.withouthotair.com.

    Limits to Growth, the 30-year update, by systems theorists at Harvard and Dartmouth, I think. The book looks at the overall system of the environment, technology, economy, etc, not just individual parts. It’s long but thorough. I’ve seen many criticisms, but none invalidate its perspective.

  • Insidious November 7, 2012, 11:46 am

    Something not mentioned is western farmings EXTREME dependence on fossil fuels, for everything from planting, fertilizer production, harvest to delivery.

    Now is a great time to get used to gardening and support/increase your local sustainable (non energy/subsidy dependent) food shed.

    Those Guatemalan avocados, Mexican tomatoes and South American fish may be cheap now.. but its time to get that avocado tree planted for the future.


    • Freeyourchains November 7, 2012, 1:19 pm

      You would think Western Farming would be independent, self-sustaining, and worked by electrical autonomous machines by now tied to transmission lines or using wireless power Tesla transmitters powered by solar and wind energies. (like the ultimate industrial argiculture factory, but self-sufficient).

      I could see a bunch of robots building greenhouses and farms out West controlled by a smartphone. Then the only problem is transporting the food to it’s demand without using fossil fuels.

      Maybe deconstruct the molecules, and send the nuclei via magnetic reconnection tunneling tubes that strech for kilometers to everyhousehold at nearly the speed of AC electrical current flow now, and then reconstruct locally.

      “Click, dinner has be downloaded and is ready”. Of course, then this company would charge customers by matter flow rate and consequently taxed and put the oil, food, and transportation industries out of business overnight. But now the world isn’t dependent on oil, only electricity generation and supply.

      • Insidious November 8, 2012, 8:46 am

        So.. how much energy to deconstruct and reconstruct molecules? Might as well just replicate the food.. since both scenarios assume a near infinite energy source and ‘magical’ level scientific knowledge.

        Back in reality land.. the food needs to originate closer to your plate. Preferably within walking/biking distance.

  • Jill the Pill November 8, 2012, 8:10 am

    Great article. Now could you write one on socially conscious investing? 350.org is beginning an effort to get individuals and institutions to divest from companies who pollute or exacerbate climate change. I have hesitated to put my savings in anything but a savings account for just this reason, and I am not competent to judge among so-called “socially responsible” investments. It would be great to read MMM’s (& community’s) opinion on this.

    • Insidious November 8, 2012, 8:55 am

      You might want to check out:

      ‘An Unconventional Guide to Investing in Troubled Times’
      by Charles Hugh Smith.

      • Jill the Pill November 8, 2012, 8:15 pm

        Thanks, Insidious, but it doesn’t look like what I am after. The Unconventional Guide looks like “the world is going to hell in a handbasket; here’s how to hedge against it.” I am in search of a guide to activist investing to help keep the world from going there . . . while not falling for crazy, green-washed schemes.

        • Insidious November 9, 2012, 12:22 pm


          Sorry, I automatically filter the ‘non use full’ parts of books and forgot that the author was motivated by his view of the future.

          I found his ideas & prescriptions interesting, but I read so many books at a time that the ‘sources’ often get overlapped in my brain.

          A short summary of his ideas:
          – invest locally in businesses and people that support your beliefs and improve your (and your communities) quality of life and resiliency

          In other words, with your activism.. start at home and work your way out, rather than trying to start by trying to change the ‘macro’ level (investing in global corporations that are ‘doing good’, or causes in distant places).

          ..and in terms of ‘investment’ I’m referring to time/energy as well as money. For example, I’m organizing a local food buying program to encourage my neighbors to eat more locally produced food. They get cheaper, healthier food.. (bulk buys from local farmers) our local area gets a more diverse, broadly supported food shed. the money all stays in the community.

          if your thinking you’re more interested in ‘big picture’ stuff.. i think a crowd sourced LFTR research project needs to be organized. ;-)

  • Concojones November 9, 2012, 3:54 pm

    I’m studying petroleum engineering. Interesting interview!

    I see two factors delaying the effects of peak oil for quite a while.

    – You don’t need to find new fields. As oil prices rise, previously uneconomic oil deposits become economic and are added to reserves. In other words, there’s a lot in the pipeline (oil, that is).
    – High oil prices have boosted investment (which was neglected in the nineties). Jacob, I don’t know when your study was done, but it may be out of date if you consider that investments started to cautiously increase from 2003 onwards, and it takes say 5 years to get an asset into production…

    Oil production is still rising every year.

    Your thoughts?

    • Alex | Perfecting Dad November 9, 2012, 7:54 pm

      Concojones, that’s exactly it. Also, oil prices don’t have that much to do with the average price of producing a barrel, or even the price of the last barrel on a day to day basis (though long run, yes). Right now you have Iran under sanction, several other middle east states under-producing because of civil wars, and the rest of OPEC trying to compensate but that reduces the surplus production available. Each year supply exactly equals demand and it will be that way into the future.

  • TomTX November 10, 2012, 9:34 am

    “Peak oil” is so last decade. Sure, the upsurge in oil production is trailing natural gas – but it is here, and it is real.

    After decades of decline, US oil production increased in 2009. It increased in 2010. It increased in 2011, and it is certainly on track to increase again in 2012 – in the face of the cheapest local oil prices of any major market (Central US/Texas) – just because we don’t have the pipelines to move it out fast enough.

    Natural gas followed the same pattern, but it started 3 years earlier, in 2006.

    One local example: Fracking and directional drilling shifted toward the “wet” (oil/condensate) end of the Eagle Ford Shale once natural gas prices started dropping. Production typically takes quite awhile to come online.

    …and we haven’t even mentioned the other overlying and lower hydrocarbon-bearing strata in the same counties as the Eagle Ford shale. Just starting to get a glimmer of production there, as everyone was so darn focused on Eagle Ford to the exclusion of all else. The other hydrocarbon-bearing strata aren’t quite as neat and even as the Eagle Ford – but there are a lot of them.

  • Self-Employed-Swami November 10, 2012, 12:15 pm

    I haven’t read all the comments, so please forgive me if someone else has already pointed this out… I am a petroleum geologist, and drill oil (and sometimes natural gas) wells. Shale is not tar, not at all. Shale is the stuff that very small particles of clay or mud, that get glued together (or lithified to get technical).
    From Geology.com:

    “What is Shale?

    Shale is a fine-grained sedimentary rock that forms from the compaction of silt and clay-size mineral particles that we commonly call “mud”. This composition places shale in a category of sedimentary rocks known as “mudstones”. Shale is distinguished from other mudstones because it is fissile and laminated. “Laminated” means that the rock is made up of many thin layers. “Fissile” means that the rock readily splits into thin pieces along the laminations.”

    The shale gas decline issue is something that is going to be very tricky to accurately estimate, as the shale actually generates the natural gas in-situ (it is it’s own source-rock), unlike most other reservoirs, which are just sponges, with the gas being stored within.

    There are other, big issues with the emerging shale gas reservoir-types, which include production limiters, such as permeability (the ability for fluids to flow through the rock) which need to be overcome. Right now, the only way to do that is with hydraulic fracturing (called ‘fracing’) which is expensive, and in some locations, the environmental concerns for contamination will limit it’s use.

    Also, for overall recovery of oil and gas from a new or existing reservoir, the best new technology has come from the drilling engineering side of things, in the form of horizontal wells. We can now drill sideways for a thousand meters or more, through the reservoir, increasing the production of a single well to what used to take 5-10 or more wells. This is making smaller reservoirs more economic, as prices increase for oil (and hopefully gas) in the future.

  • MUFF November 11, 2012, 3:50 am

    This is a topic I have been following for several years. I think it is difficult to just consider Peak Oil and the comments as well as your post look into this. Here are few more considerations:)

    Population growth

    The World population has exploded and will continue to grow rapidly. These people aspire to a better life and that means more energy usage. It may be impossible to offset the growing demand for oil for transportation with the current production growth which has been minimal if not flat over the last few years. This will result in oil staying highly priced.

    Scarcity of other materials

    If we needed to convert to electric cars do we have enough materials to produce all of those batteries? Lithium has limits as well. Indium is a key material for solar panels and a recent BBC survey pointed to only 8 years supply left at current consumption rates. Silver is also heavily used in solar panels and the BBC listed it as having only 17 years supply left.

    Converting to natural gas

    There is huge scope for this. Retrofitting a large part of the car fleet requires a huge effort as would moving to battery powered vehicles. The infrastructure to supply the gas has not been built yet.

    Get on with it!

    We have all of the means at our disposal to deal with Peak Oil and the needs of the worlds population. One problem is that money cannot create an oil field or furnish a mine over night (a mine or oil platform can take upwards of 10 years to start production). We really need to make a concerted effort to get on with it now instead of the business as usual approach. If not will an energy shortfall occur and it will be it be too late to react to it effectively? Is it worth taking the risk of in-action now?

    Many thanks for another great post!

    Chris Martinson’s A Crash Course is a good simple summary of some of the challenges we face in the future. http://www.peakprosperity.com/crashcourse

    • TomTX November 11, 2012, 6:51 am

      World population is another boogeyman which doesn’t seem nearly as strong as it was 20 years ago.

      The pattern is pretty well set – once a population hits current Western standards, reproduction drops off. Japan and Western Europe are the most common examples – they have not been reproducing enough to even keep their current populations – they are having a major demographic shift to an older population.

      The United States is close behind, and has only managed population growth through immigration.

      Frankly, people would often rather watch TV than fuck. TV glorifies spending on consumer items, not having babies.

      • MUFF November 11, 2012, 7:20 am

        Population is still set to grow from here. You are correct in summarizing the poor demographics in western society but places like Africa and Asia will continue to see population growth (from 7 billion to an estimated 8-9 billion in the next 20 years), improving living standards and lower child mortality. Please see sources below.

        Just considering China it is adding 18 million new cars per year (and probably retiring old cars at a slow rate) this would easily offset any decline in the number of cars in the west. Their per capita usage of cars to the west is extremely low.

        The developing world has rapidly increased its consumption of oil in the past 20 years and is now consuming as much as the west, Japan and Australia combined (up from 15 to 40 million barrels per day in from 1985). What cannot be easily assessed is how high does the price of oil have to be to drive down consumption.

        Finally all these people need to be fed and if they eat more protein rich foods (meet and chicken for instance) that requires the use of more oil to grow the feed.

        In my opinion population and changing wealth in the developing world is having a large impact on oil consumption and is an important topic for peak oil \ peak production rate in the future.

        Kind regards,


        Wikipedia world population to grow from 7billion to at a minimum of 8 billion by 2040
        China adding 18 million cars per year
        Oil usage increase from the developing world

        • Mike July 31, 2014, 1:35 pm

          While population is still set to grow, 2040 is not 20 years from now, more like 27 years from when you posted this. Now that same wikipedia page has an estimate of 8.3-10.9 billion by 2050, so it looks like population growth is continuing to slow down and will stagnate at some point not much higher that where it is now.

  • Sere November 13, 2012, 3:18 am

    Wow, what a dream post – MMM and ERE together! I read this out to several people, the post great perspective on peak oil, much more reasoned than what we often hear. Thank you.

  • Oelsen November 22, 2012, 5:06 am

    Ah well, we had it all:

    -the discussion about how solar is subsidized (well, then do thermal solar instead of electric, thermal is just labor and you are doing something good for the local economy)
    -the guy that confuses the boundaries of a system with its internal mechanisms (the 19th century fundamental input output discussion and internal systems theory mixed up )
    -doesn’t affect me, because I changed/have/will not do X to my lifestyle
    -oil runs out before climate change (huh? its already happening, and what about gas clathrate hydrates, deforestation, decarbonisation of soils, soil loss, the huge coal reserves and resources etc.?)
    -we don’t know future prices (yes we do, its either very high or no market at all, duh!)
    -the Chinese build dozens of international airports, buy on par with the US new cars

    Please, when will we grow up and synthesize all this information in a coherent view?

  • Darin November 25, 2012, 5:42 pm

    “Oil has the highest EROEI of all known energy sources. Higher than nuclear, wind, solar, water, and unconventional fossil fuels.”

    I haven’t really seen anything to support this as a factual generalized statement. The EROEI of oil is good when it’s used as a chemical feedstock, but in other applications at it’s actual point of use it has relatively low EROEI.

    This doesn’t imply that we shouldn’t curtail it’s use as much as possible because it has extremely high externalized costs, just that worries about a decline in use from the point of view of total energy provided aren’t well founded.

  • HereIWalk February 20, 2015, 12:56 am

    Long dead post, but I though I’d reiterate that it’s a great time to be Mustachian. The obvious and straightforward way to efficiency is to tax energy (rather than increasing taxation on productive things, like labor). Since this is a political non starter, energy efficiency guidelines have been the gold-standard solution since the seventies, though due to demand elasticity they have had zero effect on consumption–probably even increased demand. It’s a win-win for manufacturing and energy sectors, because not only do we fail to decrease consumption, but we all go out and buy new appliances! (see this great recent podcast: http://freakonomics.com/2015/02/05/how-efficient-is-energy-efficiency-a-new-freakonomics-radio-podcast/)

    But thanks to these regulations our appliances are now fantastically efficient. Joe Sucka will use this savings to buy more air conditioning, drive farther, have a second fridge, bigger house, etc. But those with any kind of self control can reap the benefits, big time.

  • Oilman February 28, 2016, 8:10 am

    Oops, you made the mistake of thinking linearly instead of exponentially! Don’t worry almost everyone did, including everyone in the oil and gas industry. Not many people calculated how fast our productivity was growing as our technology to increase recoveries in the immense shale resources improved. You can look up the data on EIA’s drilling productivity report – productivity in our industry over the last 8 years or so has often been increasing at 3-4% PER MONTH. Hence we now have super low prices for oil and gas and those prices are relatively sustainable.

    Energy is going through a huge deflationary period as new technology has unlocked new oil, gas, solar, and wind technologies. Good for mustachians since it lowers the cost of living but definitely doesn’t encourage lower energy use among the general populace. But even with all this supply, as I’m sure you know, oil will probably get trucked by battery technology in the next decade or so. Another exponential at work! And hence my reason for becoming a mustachios – petroleum engineering is already seeing lots of job cuts and it could get much worse as oil loses market share.

  • Devin October 1, 2016, 9:56 pm

    I have two Geology degrees a Petroleum Engineering minor and am currently working on an MBA. I am a Exploration Consultant in this industry and a diehard MMM reader. This is a tough subject I love this post I would to discuss helping write on this topic for the future. Maybe hit hard on Carbon Sequestration…more conversations need to happen.


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