Via press release: a forecast study of investor patterns from UC Davis.
Stock prices suggest a 90-year gap
At the current pace of research and development, global oil will run out 90 years before replacement technologies are ready, says a new University of California, Davis, study based on stock market expectations.
The forecast was published online Monday (Nov. 8) in the journal Environmental Science & Technology. It is based on the theory that long-term investors are good predictors of whether and when new energy technologies will become commonplace.
“Our results suggest it will take a long time before renewable replacement fuels can be self-sustaining, at least from a market perspective,” said study author Debbie Niemeier, a UC Davis professor of civil and environmental engineering.
Niemeier and co-author Nataliya Malyshkina, a UC Davis postdoctoral researcher, set out to create a new tool that would help policymakers set realistic targets for environmental sustainability and evaluate the progress made toward those goals.
Two key elements of the new theory are market capitalizations (based on stock share prices) and dividends of publicly owned oil companies and alternative-energy companies. Other analysts have previously used similar equations to predict events in finance, politics and sports.
“Sophisticated investors tend to put considerable effort into collecting, processing and understanding information relevant to the future cash flows paid by securities,” said Malyshkina. “As a result, market forecasts of future events, representing consensus predictions of a large number of investors, tend to be relatively accurate.”
Niemeier said the new study’s findings are a warning that current renewable-fuel targets are not ambitious enough to prevent harm to society, economic development and natural ecosystems.
“We need stronger policy impetus to push the development of these alternative replacement technologies along,” she said.
Additional information:
Full text of study, “Future Sustainability Forecasting by Exchange Markets” — http://pubs.acs.org/journal/esthag (paywall)
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Neil Craig says on November 10, 2010 at 4:23 am
While I agree that the report was nonsense, because most prognostications are over optimistic in the sort term and under optimistic in the long term and the people making them have little understanding of the nature of “breakthroughs,” on what basis do you make the above claim (that I have bolded)?
I suspect you simply have no rational basis for making that claim and wonder if I should write you off as just another wanker?
My Lord! Saying that investors and brokers can predict future events 100 years from now is even worse than saying that paleo scientists can predict the climate in the same span of time! Then these people grab this investment nonsense and tie to what? To how much oil is left? Please forgive them for they are ignorant of their sins……..
“Peak Oil” is no more truthful than “peak whale”. In a recent article on another blog, we are told that the break-even price for oil made from algae is now about $200 per barrel. With a little googling, we can find that the break-even price of oil made from converting coal is about $75. We can also find out that the company in Carthage, Missouri that made biodiesel from the waste of processing Butterball turkeys went bankrupt because the market price of oil was not high enough to cover its costs.
The truth is that we don’t burn crude oil, we burn refined products that are presently made from crude oil. What counts to the public is the price and availability of these refined products. “Peak Oil” is more often the means to further an agenda of energy stoicism. (notice how these folks relate to nuclear power). If left alone, the free market is perfectly capable of making the transition from providing fuel products for our needs no matter what the source of hydrocarbons. When whale oil got too expensive, the transition to other sources was peaceful, orderly and did not require government intrusion nor compulsion.
The truth about our planet is that we are awash in hydrocarbons that can be converted into fuels. We are also awash in nuclear fuels, particularly thorium, that can be used to generate power. I look forward to ongoing innovation and adaption to supply the energy needs of all of humanity, which the free market can do where government will allow it.
I recall way back when I was about to graduate with a BS in ChE: I was advised to stay out of the O&G business, as there was only fifty years of oil left in the ground. Lemme see: that was back in 1952, so we must have pumped dry eight years ago.
Cassandras have always been around. And wrong.
In Saskatchewan we have known oil reserves below the Potash layer and until that resource is depleted, none of that oil will flow. I’m doubtful any prediction of shortages takes this and all the other “off the table, for now” known fields. So is Big Green now pitching better panic profits for Big Oil? Nice to know that they are at least playing together.
Dr Chaos says:
November 10, 2010 at 3:07 am
You’re welcome. My logic bone has been itchin’ since I was about 12 years old. I remember I had a textbook called “Our Environment and the Living Things in It” as our science curriculum in Middle School. I practically memorized that book, and it contributed immensely to sparking my 40 year career as a life scientist.
To show evolution in action and on display, the book showed pictures of a petrified forest in California. It had layer upon layer of trees, the bank that contained them exposed from an earthquake in the near past that were “fossilized” (they meant mineralized, of course). You could see about 8 layers of trees in the photo, separated by layers of strata. The sign placed by the National Park Service was displayed in front of the trees—it read “Petrified Forest: Millions of Years of Evolution”.
Each tree stood upright in place, like an 8-story building. Each tree was approximately the same size. The page-long explanation was that this petrified forest represented countless millions of years of “evolution”, where successive forests were buried and replaced, the earlier one becoming petrified.
I never forgot that…my logic bone said, “Does Not Compute!” How could a tree remain intact while millions of years slowly covered it? Where were the stumps, or just roots? Why were the trees transfixed across layers of strata? Why did not any of them fall over? “Curiouser and curiouser”, exclaimed Alice…
I did not think consciously about this until some creation scientists had an hypothesis: they decided to look at tree rings. Lo and behold, all of the trees had the same tree rings, no matter what layer they represented! They were all among the same forest, according to these people! The result was not published widely, of course, the hypothesis ignored, and the “millions of years” sign remained.
Then Mt. St. Helens erupted. It turns out that when the trees were blown into the nearby lake, which was made into a mud slurry by the event, the trees floated until they were waterlogged. Since they were root heavy, with the center of mass in the roots, assisted by rock ballast, the trees slowly sank, but at different times over a couple of years.
As they sank, they imbedded in the mud. Upright. The silt and mud sank, and stratified around the trees. The silt continued to settle and more trees, now higher and higher, climbing the mud strata, covering each tree in turn. The trees are partially “petrified” now, having been absorbing the mineralization over time.
The sign, declaring “millions of years of evolution” in the petrified forest of California is gone now, having been quietly removed, without explanation, I’m guessing.
“Our Environment and the Living Things In It” has helped foster my healthy skepticism over the years. I wish I could find a copy of that book, circa 1959 or so. I turned out to be a pretty good scientist, inventing lots of stuff, so I am grateful. I also discovered that much of what was in that book was totally wrong.
The moral of the story is “Question everything—Use your ‘Spider-Sense’ to form hypotheses—Experiment—Look again—Listen to alternative explanations. In so doing, QUELL your curiosity.
Because everything you’ve been told may be wrong!
Looks like we might be in for some peak food scares too.
From Kum Dollison on November 9, 2010 at 11:10 pm:
Actually the crash came from underlying weaknesses. Didn’t you hear about the mortgage crisis? People with marginal finances got homes. Then gasoline prices rocketed up. Those who drove long commutes were hit hard. A few were actually losing money by keeping a job (figuring in day care expenses along with transportation, etc). More figured out they’d have more money on hand collecting unemployment and staying home, I heard of a few who volunteered to be laid off first. Then there were the higher home energy costs. Mortgages didn’t get paid, foreclosures went up… And the housing bubble didn’t burst, it exploded, as it was formed from the smelly gas coming from a rotting mass that shouldn’t have been allowed to form from the start.
And with the mortgage crisis, plus other exposed weaknesses, the US economy went down, the world economies went down as demand collapsed, etc.
The oil prices triggered it, but it was inevitable it would have happened sometime. Before it blew up, analysts were saying the market could bear the higher prices, and we were headed to $4 a gallon gas and $200 a barrel crude looked possible to likely.
Meanwhile, assorted Green activists and politicians were (and still are?) pointing to how well US drivers bore those higher prices for so long as proof we can withstand a $1 a gallon tax to fund Green projects and more social spending while reducing consumption to reduce carbon emissions….
In the ground, we actually have less since we’ve been pumping it out. But we have discovered more of it, drilled more wells, done more research on extracting it from pump-able and non-pump-able sources (shale, tar sands etc). We’re making it from coal and other sources (Fischer-Tropsch etc).
In real terms of the amount of oil available to us for immediate use, we have more now than we did fifty years ago, may have more in the future than we do now, might even have more now than we did in 2008.
Less in the ground, sure. But as technology moves on, we may end up “creating” more oil and oil products than was ever in the ground. It’s possible, and getting more possible all the time.
Charles Higley says:
November 9, 2010 at 9:26 am
“With our…technology exploding logarithmically…”
Why does it mean to explode logarithmically? Are you down on our technology?
The fact is: oil has, basically, doubled in price since 2005, and we can’t pump a drop more now than we could then.
The DOD “Joint Operations Environment” Report says we’re in deep doo-doo. The German Military says the same. Both the EIA, and the IEA state that the only way we can keep production at current levels is by utilizing “Undiscovered” Fields. “Undiscovered!”
It takes Years from “discovery” to “Pumping.” We know what’s coming in the next few years. Not enough.
Take “Reserves” with a grain of salt. It was 1989, I think, that OPEC decided to base “quotas” on “proven reserves.” Within two years all OPEC Nations had “Doubled” their “proven” reserves.
Last month the USGS lowered its estimate of “proven” reserves in the National Petroleum Reserve – Alaska from 10 Billion Barrels to 1 Billion Barrels. A -90% revision.
Oil producing countries could be pumping a hell of a lot more oil than they are — otherwise why does OPEC go through all the motions of meeting regularly to enforce and update its production quotas?
The danger to OPEC is pumping too much oil, so as to reduce the price below desired levels. The history of “crash and burn” of oil prices due to over-production goes all the way back to the mid 1800s. Modern oil producers have learned a lesson from all those boom-bust cycles.
It comes down to basic economics, which is neglected in almost every student’s education these days. Producers restrain production in a cartel, in order to maintain higher prices.
Demand is what is peaking, not supply. The assumption of exponential increase in demand for the indefinite future is faulty. It is the weakest of many weak links in the peak oil doomers’ arguments.
All I can say is that there must have been a butt-load more dinosaurs on the earth than my Science teacher let on…
Al Fin 10/10/2010 1:41 PM Oil producing countries could be pumping a hell of a lot more oil than they are — otherwise why does OPEC go through all the motions of meeting regularly to enforce and update its production quotas?
Because, when demand doesn’t change much with price, a small mismatch between supply and demand creates a big difference of price. There’s no necessary implication “could be pumping a hell of a lot more oil.”
http://www.forbes.com/forbes/2010/1108/opinions-steve-forbes-fact-comment-energy-crisis-over.html
Myth: The World is Running Out of Oil (Video) (5min) (ABC News)
“As a result, market forecasts of future events, representing consensus predictions of a large number of investors, tend to be relatively accurate.”
I’m an investor. This is not true beyond roughly six month. And even to six month it is dicey. If you think that it is true, take your money and buy stocks according to the consensus predictions. If you are right, you’ll make far more money that way than you will writing papers at UC Davis. Do you know why Warren Buffett buys Coke and Sees Candy instead of high tech. Because high tech is too hard to understand, making it too hard to predict.
Oh geez… They market has voted “it’s junk” on the alternatives because they are not CHEAP enough to compete with oil, so these folks then use that to say that they are technically deficient? They are not technically deficient at all. They are fully “ready to roll out” and highly developed (see South Africa where they make their oil from coal and Brazil where they make alcohol fuel from sugarcane). And whenever oil starts to run LOW (it never does run OUT) the price will rise and alternatives will be used (provided dumb politicians have not so bollixed up the market so as to kill it…)
At present, a “depleted” field still has about 1/2 the oil in the ground. We never ‘run out’ because we could always get some more out at a high enough price. (And that whole Energy ROI thing is just bogus. We could use nuclear electricity to raise the oil if it made economic sense to use if for fuel rather than change batteries).
On the issue of markets being such good predictors. There is an old saying that traders know and academics don’t seem to remember: “Markets can stay irrational longer than you can stay solvent”. The whole field of Value Investing is based on taking advantage of longer term market irrationalities. The “Efficient Market Hypothesis” is simply wrong, but taught as God’s Own Truth in schools. Existence proofs of it being wrong are legion. Like every successful trader out there…
BTW, the world tends to have a constant number of years of reserves left (and has since at least 1919 – I’ve got a petroleum engineering book from then with the reserves quote in it of ’50 years’…) due to the price setting the point at which oil is held to be a ‘reserve’. If you get more than that, prices drop and some ‘goes away’.
There is no oil crisis. There is no energy crisis. There are a bunch of very stupid folks running the government and stupider folks panicking over nothing.
We can turn TRASH into oil products at about $3 / gallon. There is no shortage of trash. But bulk gasoline sells for $2 / gallon. So our trash mountains do not count as “reserves”… Yet.
This is for the “OMG we’re running out of hydrocarbon energy!” mob:
From: The Times November 10, 2010
Robin Pagnamenta, Energy Editor
GLOBAL GAS GLUT COULD THREATEN ALTERNATIVE POWER RESOURCES
A glut in global supplies of natural gas over the next decade threatens to blunt investment in alternative sources of energy including wind, nuclear and solar power, the International Energy Agency said yesterday.
Speaking at the launch of the IEA’s annual World Energy Outlook report, Fatih Birol, its chief economist, said that the world was entering a “golden age of gas” because of surging production of shale gas using new technology developed in the United States. He said that the IEA, the Paris-based agency that advises the Organisation for Economic Co-operation and Development on oil and energy issues, was now predicting a global surplus of the fuel of about 150 billion cubic metres annually in the years ahead.
That’s equivalent to nearly double Britain’s annual gas consumption of 86 billion cubic metres, or 5% of world demand – 2,940 billion cubic metres.
Peak Oil seems to reside next to the pot-o-gold that the leprachaun keeps an eye on.
Study ABIOTIC OIL –
We are going to run out of oil at about the same time that the earth ceases to exist.
This is more of the little boy crying wolf… too many times!
The Fission reaction at the earth’s core seems to be a major factor in replenishing the supply of the ‘fossil fuel we call oil’ – hence the name abiotic – NOT a fossil fuel – we are NOT running out of it!
Wolf.