Decline Rates
Daniel J. Lavigne
There are at least 2 other factors that will be in play here, with
potentially large (negative) impacts on supply of energy available
for import to developed nations.
When it's clear to the world that fossil-fuel energy prices will
never go back to their 20th-century lows, but instead are likely to
continue ratcheting up indefinitely, these two other factors must be
considered:
1) Oil- and gas-exporting nations will be the beneficiaries of
disproportionately greater revenue for the same unit quantity of
energy exported. They will have to decide how to invest that
income; and many will decide to invest it in their own industrial
expansion. Like China today, with its vast armies of low-cost
labor, oil-exporting nations will be a magnet for energy-intensive
industries. They will be able to offer a better (more profitable)
deal than other countries. As a consequence, their own internal
domestic demand will shoot up, for two reasons: the energy-intensive
industries themselves, and the expectations of a large and growing
middle class, benefitting from that inflow of industry and jobs.
By attracting industry, they can supply finished end products and
materials to the world at prices no one else can match because
it's "subsidized" by their own cheap energy; there will be even more
profit selling these, than selling raw crude oil.
2) When it's clear that prices will, at worst, plateau periodically,
but overall will rise perpetually, the view of reserves still in the
ground changes: they become appreciating assets, and pumping them
out as fast as possible may not be the best strategy. Any exporting
nation that's not totally strapped for cash flow will be better off
holding it in the ground and metering it out at a reduced rate, if
the asset in the ground appreciates faster than other standard
investments.
Both these strategies, which I believe you will see in the coming
decade, will tend to further reduce availability of energy for
export to developed countries. Rising prices will certainly
generate their share of "demand destruction" in developed countries,
and the industries will move to wherever production costs are
lowest. It actually becomes "demand displacement".
Dick Lawrence
--- In energyr...@yahoogroups.com, "Perry Arnett"
<pjarnett9939@h...> wrote:
> Thanks Nick! You're singing my song.
>
> I think Duncan is the one who first (to my knowledge) postulated
the higher decline rates i.e. 3.5 - 6% or greater (sorry, I can't
recall the specifics) but most others have suggested a 'theoretical'
decline rate of only 2 - 2.5% or so - thus, trying to offer some
justification for their techno-cornucopian-optimistic views that
life will be rosy forever!
>
> I think that will prove to be sheer folly when the numbers are run
AFTER-THE FACT; and I believe that the REAL decline rate, factoring
in all the graft, losses, spillages, thefts, 'shrinkages', middle-of-
the-night-heists-on-a-back-road, 'revised adjustments', etc. will
easily hit in the area of 10% - 18%; I did a short post on this here
many months ago...
>
> I'm glad to see someone else finally realizing that the numbers
are NOT going to add up; that the actual production numbers after
Peak will deviate farther from the official possible numbers, the
farther down the Olduvia Gorge slope we go.
>
> Perry Utah
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