Will Houston Peak When Oil Does?

[Guest danax]

I've been pondering the whole "peak oil" scenario and how we'll be affected if radically expensive oil prices happen. Here's one person's idea of what we might be in store for;

Should residents of Houston, a city built on cheap energy and that generates 140 million miles of vehicle traffic daily, using 4.5 million gallons of gasoline, be concerned? Absolutely, says Jim Kunstler, author of The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century.

[TJones]

Danax, George W. is fixin' to introduce some legislation that will make it mandatory that Ethanol be used at 30% which will conserve the oil, and make it's value drop. I pray that our big plants in Pasadena and Baytown, have these "alternative fuel" producing plants set up as well. I feel that if this bill passes that Houston's economy will suffer.

[Guest danax]

Danax, George W. is fixin' to introduce some legislation that will make it mandatory that Ethanol be used at 30% which will conserve the oil, and make it's value drop. I pray that our big plants in Pasadena and Baytown, have these "alternative fuel" producing plants set up as well. I feel that if this bill passes that Houston's economy will suffer.

That might buy us a little time. And yes, despite our massive petrochemical complex, we don't appear to have a single ethanol plant nearby, and no corn fields either

[musicman]

I feel that if this bill passes that Houston's economy will suffer.

But at the same time, it costs so much money to build new plants that many old ones will be retrofitted to accomodate the process. It won't be cheap but sure will be less than building a new plant. And in order to stay in business they will have to do it.

Edited January 21, 2007 by musicman

[Subdude]

I'm highly skeptical of "peak oil" theories. Predictions of oil shortfalls have been made, and proved wrong, for a hundred years. That said, there are plenty of other very good reasons to be less energy dependent. If oil gets more expensive I think you would see gradual densification of Houston and a relative loss in value for far-flung suburban houses that are too auto-dependent. If peak oil theories were proved correct, and supplies became seriously stretched, then I suppose it makes sense that Houston could shrink.

While it is connected to the Gulf of Mexico by waterways, it has no harbor or waterfront per se, in the sense of, say, Baltimore or Charleston, so this is an additional factor in Houston's ability to remain a substantial city.

[TheNiche]

I don't understand this comment at all. Even without a "waterfront per se", Houston is a larger port than Baltimore or Charleston. I would think this contributes to our "ability to remain a substantial city."

Yeah, the waterfront comment was just absurd. It only illustrates the ignorance of the commentator.

I'm not clear on why peak oil would be bad for Houston. Scarcer oil supplies on a highly inelastic demand curve would cause phenomenal price surges. And when prices go up, there is more incentive for exploration and production in our upstream sector. That means that employment in the energy industry would increase dramatically, and because there are specialized skill sets that are associated with energy, wages for the most qualified people would spike. Also, industries that are engineering-intensive, energy among them, experience the greatest economies of scale by locating in urban areas that already have a disproportionately high number of similar jobs. That's good for our economy, although the national economy would likely decline.

Yes, we'd have to change the form of our city and do it quickly, but our rate of growth and the amount of money coming into this town would make our transition much easier than that of comparable cities such as Dallas, Atlanta, and Phoenix, where the transition would be necessary even as the population becomes substantially poorer from its reduced buying power and as demand for goods and services that are more elastic than energy decline, causing stagnated economies. It'd be a disaster for them. But our growing and wealthier labor pool would 'steal' away any kind of labor that could be used in exploration and production, and then, to support those people, we'd also 'steal' jobs in secondary sectors, such as healthcare.

Peak oil would quickly place us in the top-tier of American cities...possibly world cities, depending on how long the crisis lasted. It'd be as close to Dubai as could occur anywhere in the United States. Anybody that owns property in the Houston area (and not necessarily just Inner Loop, either, since so many of our jobs are scattered among edge cities) would benefit. We should be crossing our fingers and counting on peak oil.

...but alas, I agree with Subdude. Peak Oil seems unlikely. I see it as more likely that oil prices will decline back into the mid-to-low $40's, and hover there for the next few years. Anything over about $30 is enough to cause people to consider energy efficiency as they make home and car buying decisions and go about their lives, as well as firms to become more efficient, and investors to fund alternative energy R&D. All that causes a long-term decline in energy demand. This is why OPEC generally backs off when prices get high. Exxon folks have told me the same thing. The short-run gain is nice, but it endangers their long-term viability. So it goes with Houston.

Edited January 21, 2007 by TheNiche

[dalparadise]

Wait a minute. I thought Houston peaked around 1975.

[TJones]

I have to wholeheartedly agree danax that your Mr. Kuntsler is dead wrong on the whole "Harbor per se" deal. Galveston was a huge port back before and even when the Civil War was going on. The ship channel opened up and has become the fifth largest port in THE WORLD ! There are more than just oiltankers cruising in and out of our ship channel I can assure him. This region has been a vital part in the growth of this nation, and main bloodline where trade lanes are concerned in the import and export of products.

Edited January 24, 2007 by TJones

[Mark F. Barnes]

I have to wholeheartedly agree danax that your Mr. Kuntsler is dead wrong on the whole "Harbor per se" deal. Galveston was a huge port back before and even when the Civil War was going on. The ship channel opened up and has become the fifth largest port in THE WORLD ! There are more than just oiltankers cruising in and out of our ship channel I can assure him. This region has been a vital part in the growth of this nation, and main bloodline where trade lanes are concerned in the import and export of products.

I have to agree it is an absurd statement. I mean the Port of Houston has more traffic than it could handle, that's how that Port of Dallas up on I-45 came to pass. That is mainly the overflow from POH. The US Customs couldn't keep up with the cantainer traffic, so now they have an inland port and US Customs clearing station 180 miles inland. Kuntsler needs to be drug tested, or he's definately nuts.

[Montrose1100]

So, lets expand our port. Alot of people seem as if right around the corner, that all the world's oil supply would dry up, causing a mass chaos & panic, a rita evacuation sized moving of everyone out of Houston, turning it into an instant Detroit.

So what about our other businesses? TMC, (as mentioned) The PoH, Aerospace, transportation... the list goes on. And as Niche said, peak oil would bring a better Houston... Did nobody take economics? does the word "incentives" mean anything to anyone?

Edited January 24, 2007 by Montrose1100

[Guest danax]

I have to wholeheartedly agree danax that your Mr. Kuntsler is dead wrong on the whole "Harbor per se" deal. Galveston was a huge port back before and even when the Civil War was going on. The ship channel opened up and has become the fifth largest port in THE WORLD ! There are more than just oiltankers cruising in and out of our ship channel I can assure him. This region has been a vital part in the growth of this nation, and main bloodline where trade lanes are concerned in the import and export of products.

I didn't understand the harborless comment either. It didn't take much digging to see how debateable this subject is, and how it resembles the global warming debate, with the "hippie environmentalists" against "the establishment". The one difference is that running out of oil is not a question of if, but when.

Exxon thinks we have 4 trillion barrels left, 4 times the amount we have used so far. Should we believe them, or might they be a little biased? On the other hand, the new Chevron discovery in the Gulf requires drilling 5 miles beneath the ocean surface, and will produce 3-15 billion barrels, which is about 6 months worth of supply for the world at most, but it's still a huge discovery, but apparently it will only replace other sources that are drying up. There could be a lot more in similar areas, so this could buy us all time, but it's expensive to extract at that depth so prices will likely have to stay fairly high to make it feasible.

But going down into these depths would seem to indicate a desperation of sorts, of having tapped out easier geological regions. Hopefully, we'll prepare for the inevitable and not get caught with our pants down when the peak/plateau finally happens and make a smooth landing into a cleaner world of "alternative" energy.

[CDeb]

But going down into these depths would seem to indicate a desperation of sorts, of having tapped out easier geological regions.

Not necessarily desperation. More like a combination of better technology and higher oil & gas prices making these deeper discoveries less risky to attempt to recover.

[RedScare]

People, especially those on the fringes, tend to misunderstand what "Peak Oil" is. It is not the running out of oil. It is the halfway point in the world's supply of oil. What is critical is not the fear of running out of oil, but the diminishing supply of easily discoverable or produceable oil. As it becomes harder to produce, as in danax's deep-water Gulf example, the price escalates. As the price rises, so does the price of everything that relies on oil.

When the effects of Peak Oil hit is anyone's guess. What is more of a concern near term is the political uncertainties of oil. Much of the world's discoverable oil is in area's that may make it hard to obtain, such as the Middle East, Russia and Venezuela. Oil that is unattainable for political reasons is just as unrecoverable as oil that is hard to drill for. The net effect is the same. The price escalates, and those with limited resources must adapt.

As the price of gas rises, people will adjust to survive the increase. For some it will be easier than others. Certainly, those that live closer to work, and live in less energy intensive homes will be able to adjust better than those who don't.

[tamtagon]

Houston has become what it is because of cheap car travel and cheap air conditioning. These are two things that may not be with us much longer ....

[TheNiche]

I didn't understand the harborless comment either. It didn't take much digging to see how debateable this subject is, and how it resembles the global warming debate, with the "hippie environmentalists" against "the establishment". The one difference is that running out of oil is not a question of if, but when.

Exxon thinks we have 4 trillion barrels left, 4 times the amount we have used so far. Should we believe them, or might they be a little biased? On the other hand, the new Chevron discovery in the Gulf requires drilling 5 miles beneath the ocean surface, and will produce 3-15 billion barrels, which is about 6 months worth of supply for the world at most, but it's still a huge discovery, but apparently it will only replace other sources that are drying up. There could be a lot more in similar areas, so this could buy us all time, but it's expensive to extract at that depth so prices will likely have to stay fairly high to make it feasible.

But going down into these depths would seem to indicate a desperation of sorts, of having tapped out easier geological regions. Hopefully, we'll prepare for the inevitable and not get caught with our pants down when the peak/plateau finally happens and make a smooth landing into a cleaner world of "alternative" energy.

It is neither a question of if or when, but at what price. And price is influenced by an enormity of complicating factors, the most important of which are demand, short-term supply infrastructure, long-term supply infrastructure as determined by technology, and availability of the resources.

It is difficult to say with any certainty that the real cost of producing a barrel of oil will go up dramatically in the long-term because there is an extremely strong financial incentive for R&D of new exploration and production technologies, especially when prices are high. This means that even if we've already picked the low-hanging fruit, perhaps it is possible to buy ourselves a ladder and pick the next row. Technology is difficult to predict...obviously, but it has to be factored into any reasonable forecast, because we may not know how much more efficient it will make exploration, but we know with certainty that it isn't going away. ...and historically, technology has only tended to build upon itself in a geometric progression, causing long-term prices to decline even as demand has increased (a.k.a. backwardation), so that's a an optimistic thought.

In the very long term, no matter what technology is developed, it is inevitable that backwardation will end, even in a continuous equilibreum condition that ignores shocks to the market. There is no guarantee on when that'll happen, because frankly, we don't know how much oil is out there, much less where it is, to what political entities it belongs, how accessible it is, or how our technology may or may not be able to cope with the accessibility. We also don't know how technology may affect the demand side of the equation; advances in third-world fuel efficiency may be a particularly important variable. Anyone who claims to have answers to these questions is not to be regarded as a credible source. But still, it is known that at some point, we enter a long-run contango situation, in which prices begin to rise as a means of efficiently rationing a scarce and finite resource. By virtue of rising prices, the supply of oil will never be entirely depleted.

Think of wine. There are potable 19th century vintages still in existence, but the price has gone up to the point that almost nobody consumes wine of that age. There will always be bottles of that wine around (if only in museums), but consumption will become increasingly sporadic because we're only talking about the very top end of the demand curve for wine.

------------

Fortunately, the incentive for R&D works on both sides of the supply and demand equation. Just as it makes oil less expensive, it also reduces the demand curve by increasing fuel efficiency and by making alternative fuels more affordable. At some point, oil prices will rise to the level at which alternative fuels become viable (even if technological advancement were to stop today), and so society will slowly switch over, leaving adequate supplies of oil for uses for which alternatives have not yet been developed, such as chemical and pharmaceutical manufacturing.

So what should people take from this? Worry about the short term. Political and military shocks to the market are and historically have been the most costly and disruptive problems facing energy supplies and consumers. But the long term will work itself out, and without the chaos implied by many Peak Oil theorists. It's just not worthy of concern.

[Orikal]

I've read a couple of Kunstler's books, and while he obviously has some idea what he's talking about, he typically makes large leaps based on too little information. While the near future may be rocky due to dwindling supply, he is very much an alarmist, at points bordering on the absurd.

[FireFlyter]

Where I Live Will Be a Mute Point After I Get My Jet-Pac...[quote name='danax' post='142373' date='Saturday, January 20th, 2007 @ 7:29pm']I've been pondering the whole "peak oil" scenario and how we'll be affected if radically expensive oil prices happen. Here's one person's idea of what we might be in store for;

Should residents of Houston, a city built on cheap energy and that generates 140 million miles of vehicle traffic daily, using 4.5 million gallons of gasoline, be concerned? Absolutely, says Jim Kunstler, author of The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century.

"Well, this may not be a happy thought," Kunstler says, "but the folks in Houston may have to lower their expectations about what kind of life will be possible in Houston. Houston has become what it is because of cheap car travel and cheap air conditioning. These are two things that may not be with us much longer

Edited January 24, 2007 by FireFlyter

[Guest danax]

Fortunately, the incentive for R&D works on both sides of the supply and demand equation. Just as it makes oil less expensive, it also reduces the demand curve by increasing fuel efficiency and by making alternative fuels more affordable. At some point, oil prices will rise to the level at which alternative fuels become viable (even if technological advancement were to stop today), and so society will slowly switch over, leaving adequate supplies of oil for uses for which alternatives have not yet been developed, such as chemical and pharmaceutical manufacturing.

I think that is a likely scenario, but we're still talking very expensive fuels, unless alternatives get cheap all of a sudden, and very expensive oil on par with alternatives leaves oil companies, perhaps making a nice profit per barrel, but with much less production, which leaves Houston where? With a lot less oil jobs, it would seem.

[CDeb]

I think that is a likely scenario, but we're still talking very expensive fuels, unless alternatives get cheap all of a sudden, and very expensive oil on par with alternatives leaves oil companies, perhaps making a nice profit per barrel, but with much less production,

You left something out:

Nice profit per barrel makes for a hefty incentive to seach for new production, which involves ramping up the business, which is not bad for Houston's economy. Every dollar the price rises also makes another drilling project economical, a built in control mechanism.

[Guest danax]

You left something out:

Nice profit per barrel makes for a hefty incentive to seach for new production, which involves ramping up the business, which is not bad for Houston's economy. Every dollar the price rises also makes another drilling project economical, a built in control mechanism.

There's a lot I don't understand about oil profits, but wouldn't a scenario where alternatives become cheaper ,which would cause demand for oil to drop, result in lower production/less employment or, would the extra exploration due to higher per-barrel profits result in more oil, meaning cheaper prices/more demand?

Or does this logic only work as long as more exploration results in steady discoveries? What happens when exploration costs start becoming huge with little in the way of discoveries? Wouldn't that make barrels ridiculously expensive and therefore killing demand, and mean the end of the oil business as we've come to know it?

[TheNiche]

Sure, the guy wrote a book so it sounds self promotional/alarmist but lots of people seem to agree that oil production is almost at its peak and discoveries are a lot less plentiful that a few years ago. We know the time is coming and it seems we have little in the way of real alternatives to oil, especially when it comes to transportation. All this talk about us becoming some mega-city seems silly in light of this possiblity. And what would the rest of the world do?

A few things we, as a city and as individuals might do are;

1) Get as much light rail on the ground as possible as electricity can be produced with wind, solar etc. Driving to work from the burbs might be ridiculously expensive in a few years. Create tons of bike trails too.

2) Get a small house with a fireplace to save on heating and cooling. Even alternative energy sources will be expensive, especially if oil prices jump quickly and alternative energy infrastructure is suddenly way behind demand.

3) Learn to consume less of everything.

Unfortunately, all of the above happening relatively quickly would wreak havoc on the economy, here and around the world.

We do have alternatives for transportation, and you're right that they are presently more expensive and/or underpowered. But we aren't talking about a crisis tomorrow. We're talking about a slow progression occuring over the course of many years. Gives us time to adapt. The big and sudden shocks happen from time to time, but they have far more to do with politics than economic geology.

By the way, fireplaces typically burn biomass. Biomass is neither clean or plentiful. Our forests simply could not sustain our present-day population the way that they did in the 19th century. After heating oil, electricity will still be the best form of AC or home heating.

[TJones]

My thinking is that congress will let us pump out all the oil in our existing wells by 2050 or 2060. Then will go ahead and open up ANWR and gulf coast regions, by then the techniques and tools used for drilling will have drastically changed, probably some new laser cutter that will make it so simple that we will be scratching our heads wondering what the hell we were so worried about back in 2007.

This of course all hinges on how much oil we have actually stockpiled over these remaining years. My guess is that the oil supplies by then will last us up to another 50 years or so, and will actually be in no danger whatsoever of ever running out, because we can already synthesize(sp) oils, they will eventually learn how to synth. fossil fuel that burns like hydrogen for no emmissions.

Oh, and it looks like using Fireflyter's plan of more bike trails will force employers to make locker rooms full of showers for all the hot and sweaty bike riders coming in the mornings. Maybe we'll get lucky and they'll be CO-ED !

Edited January 25, 2007 by TJones

[TheNiche]

I think that is a likely scenario, but we're still talking very expensive fuels, unless alternatives get cheap all of a sudden, and very expensive oil on par with alternatives leaves oil companies, perhaps making a nice profit per barrel, but with much less production, which leaves Houston where? With a lot less oil jobs, it would seem.

The scenarios in which finite resources are depleted require that older oil fields dry up and are taken offline, and that newer fields are either discovered and tapped or that known fields that are at greater depths or otherwise harder to reach have to be exploited. In either case, what will be a huge economic engine for Houston will be the change infrastructure. It is one thing to have existing infrastructure in place, so that you just push some buttons and turn a valve, and there's more oil flowing to market. It is another thing to build newer and more complicated infrastructure. That is where Houston stands to benefit.

...and then there's exploration. The less oil there is, the more incentive for people to pump money into finding new reserves. Even if less oil is actually found in each successive year, the potential reward (as determined by prices) to be had for a company that makes a find will keep geologists and engineers very busy.

Admittedly, though, the downstream energy sector would suffer. Less efficient refineries would likely be shut down.

Of course, if long-term oil prices start to match and exceed the prices associated with alternative forms of energy, then demand will be displaced to the substitute, effectively capping the price of oil in the long term. As society adjusts, the price of oil may even decline back below the price of alternative energy sources, allowing for less reasonably inexpensive chemical and pharmaceutical manufacturing processes that are inescapably dependent upon oil, but without some of the other more easily replaced demands, such as transportation and electricity generation.

In that event, Houston gets slowly screwed, much like Detroit. Fortunately, we have better climate and are more affordable, so we may just stabilize and see very slow growth. But again, that's many years off in the future. It is hard to say what the next decade or two may bring.

[worldlyman]

Peak Oil was something I used to believe in especially when Mike Ruppert put out his From the Wilderness material.

But author Dave McGowan really called him out and has presented some excellent arguments why "Peak Oil" may be just a scare tactic to keep us in line. McGowan also did an excellent job, in my view, of exposing Ruppert for what he really is.

http://www.davesweb.cnchost.com/

The beef of his anti-peak oil argument starts with his Newsletter #59:

http://www.davesweb.cnchost.com/nwsltr59.html

Dave McGowan, along with Norman Livergood, Michael Parenti, William Blum and Stan Goff is one of the more astute resources for me when it comes to socio-political perspectives.

Edited January 25, 2007 by worldlyman

[H-Town Man]

The world is fast approaching its peak production of food at the same time that its population is skyrocketing, and there is no way that our current rate of growth will be able to sustain itself. By 1900, the number of stomachs on earth will far exceed what they can be fed. The problem is that food supply is growing arithmetically, while population is growing geometrically (we are already at ~500 million). The only logical outcome is that there will be a severe famine and check on human population growth.

Read all about it:

http://www.amazon.com/Principle-Population...TF8&s=books

[The Great Hizzy!]

I've been hearing and reading about that more and more lately, H-town Man. Thanks for the link.