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$100 a barrel: Going, Going....
Posted by aeldric on May 6, 2008 - 7:00pm in TOD: Australia/New Zealand
Topic: Demand/Consumption
Tags: demand destruction, oil, oil prices, peak oil [list all tags]
This is a guest post by Phoenix, an engineer working in the energy sector, and a friend of mine for well over 3 decades.
In January 2006 Phoenix emailed me a spreadsheet that predicted an oil price of $100/barrel by 2008, followed by an ongoing geometric rise in oil prices. I remember immediately phoning him to point out that the scenario was impossible because it is unsustainable - $100/barrel would cause economic havoc comparable to the oil shock of the 1970s and if a geometric price progression followed, then no economic recovery would be possible and... well, I recall using the phrase “rioting in the streets inside of 18 months”.
As we know, oil hit $100 in January 2008 and kept climbing, surpassing even Phoenix’s predictions. So when Phoenix offered to explain the model that generated those numbers, I leapt at the opportunity. Here is the story of how Phoenix became Peak Oil aware and generated his Price Calculator.
Click to Enlarge
Going, Going .... Gone
So what’s a barrel of oil really worth?
At the start of 2006 I became peak oil aware. Most of the readers of TOD will have lived through the turmoil of concern and dismay that this realisation usually brings on. In the months following, I proceeded to digest as much information on the topic as I could. However, after a time I noted that, while there was an abundance of predictions on amounts of oil and the depletion rates, there was little in the way of forecasts as to the future oil prices that would result.
At that time (and still today) I was an avid believer that the consequences of oil depletion will unfold as an economic crisis rather than as direct impacts from the shortage of energy. This being the case then why was there virtually no debate or a plethora of predictions as to the long range prices?
Perhaps everyone was relying on the output of the IEA for such forecasts? A quick review of the IEA numbers at the time was distressing. They were forecasting a drop in the price back to the US$40-$50 range. Even worse, world governments were probably using these predictions to set energy, social and infrastructure policy. I decided for my own piece of mind, to attempt to generate a simple model for predicting the long range oil price.
Basic Theory
Traditional oil market economic theory seems to be modelled around the notion that the price for a commodity is simply a reflection of the input costs. Markets, while they may experience temporary upsets due to imbalance between supply and demand, through the forces of competition will correct themselves so that prices are governed by costs.
Being an engineer rather than an economist I felt at liberty to toss the above theory out the window. It seemed to me overly reliant on the concept that the world was infinite and that markets always have the capacity to expand to meet demand.
Instead I started from the premise that the production of a commodity is limited. Of all those people vying for the commodity someone inevitably will miss out. They will not be able or willing to pay the market price. The price then will be governed by the maximum amount that this person is prepared to pay.
Supply
The starting position for the model was the prediction of oil supply rates over the future 30 years. As mentioned above there are many, many predictions concerning these numbers. I had to select one based on a consensus of the data available. I used a simple bell curve with the following parameters:
- peak of 85 Mbpd in 2007
- ultimate remaining capacity 850 billion barrels
- standard deviation set to give a depletion rate of 2.7 % by 2020
I am sure there will be a range of views on the veracity of these numbers.
On top of this base supply number I had to account for the growth of alternative fuel substitutes that will inevitably develop as the oil price climbs to a point that makes them viable. Predicting the capacity and ultimately the take-up of these alternatives is a little tricky. I lumped these into two areas:
- Alternative fossil based fuels (Oils sands, Coal to Liquid and Gas to Liquids)
- Renewable fuels
Against each of these I assigned an estimated * maximum capacity that was achievable and a price sensitive take-up rate.
Demand
As indicated above my basic premise for the model was demand destruction due to price sensitivity. To facilitate this I divided the demand into a number of economically predictable groups. This division was somewhat compromised by the necessity to obtain current consumption rates for these groups. The first division was made between OECD and non OECD countries. Within this I divided into the following sectors:
- Personal Transport
- Public Transport
- Heating
- Industry
- Shipping
- Air Transport
- Military
- Power Generation
- Products
Even this list involved a degree of interpretation *of the available data on consumption.
Against each of these sectors I assigned * a price sensitivity profile. As far as I have been able to research there is no definitive numbers or reported figures for these profiles. In my research I have come across a number of reports that provide indications for particular national groups. Where possible I have ensured that the profiles I have used are consistent with these reports. For the most part, however, these numbers are based on my personal experience and the experience of some of my associates. This is not ideal but it is the best I could do.
Model
I constructed the model in spreadsheet form. It simply compares the demand and supply and determines the price level necessary to suppress the demand to meet the supply. I have set the model up on a yearly period going out to 2040.
Results
Having run the model for the last two years I have noted the following:
- The results while fairly accurate in emulating the observed market price for oil, do not take into account a number of distorting factors affecting the market. These factors include, supply disruptions and the human factors (greed and panic) that affect any market.
- The prices are on a 2006 USD basis. I subsequently added an allowance for inflation into the analysis. Anyone want to take a guess at what inflation will be in 30 years time? I have used a consumption- weighted figure between OECD and non-OECD current inflation rates and applied it to all future years.
- There will be an increasing trend for governments to hoard and lock up future supply. I have made a very rough attempt to * forecast the volume and timing of this factor in the spreadsheet. My view is that by 2030, all traditional oil sources will be subject to this government interference. Hence the above curve only represents the market price up till that time.
See the oil price prediction curve below:
Click to Enlarge
For Australian readers I have translated these numbers into a predicted pump price for petrol.
Click to Enlarge
Future Development
As can be seen from the above, the model generated suffers from a number of limitations (highlighted by *). For the most part these limitations spring from the extremely limited resources available to an individual. Yet despite this the results are considerably better than the IEA predictions.
In order to improve the accuracy of the model I intend to undertake the following revisions :
- Further division of the demand sectors with a separation of China/India from the non OECD group.
- Generation of separate sectors for essential services and perhaps agriculture in order to get a clearer idea of the likely effects government intervention may have on the demand.
- Incorporation of feedback on secondary demand destruction resulting from economic slowdown.
I hope the above curves form a useful discussion point for TOD members.
Good post. I don't have any data precise data (no one does), but my years of experience, the research that I've done on Peak Oil (not allowed to reference my report here/stuff gets deleted/but you can find it), and common sense tell me that your forecasts are too conservative. Oil could hit $1000 in a few years after the peak, especially if some of the dire oil production decline rate projections turn out to be correct, see Jim Kingsdale's review of this: http://www.energyinvestmentstrategies.com/peak-oil/
and also the German Energy Watch study: http://www.energywatchgroup.org/Oil-report.32+M5d637b1e38d.0.html
ASPO is going for a slower production decline rate: http://www.aspo-ireland.org/index.cfm?page=viewNewsletterArticle&id=43
We will see soon enough, and even if you are on target, it's going to be a rough ride down. Hold on, cause alternatives are not coming to the rescue. Clifford J. Wirth
I would tend to agree. Even with oil at $120, large inefficient vehicles are still being sold and fleet efficiency is hardly budging.
I would expect a series of dramatic increases, followed by price plateaus as demand is destroyed to meet the new level of supply. We will get to 100 mpg plug-in hybrids by 2030, and if we do, we could support a oil price of $1000 per barrel because we will be using so much less per individual. Just imagine: $25 gasoline. Ouch!!
CLZ09:
This comment is, I feel, a little too pessimistic. What we need to do is look at the leading indicators and allow for lags. "Fleet efficiency", for example, is a function of all cars on the road. Given the way SUV sales were booming through the 90s & even until about 2005, we could expect fleet efficiency figures to be dropping as old, pre-SUV cars go to the wreckers. In these circumstances, having fleet efficiency being static is an indicator of how the graph is actually beginning to turn.
Second, sales of large inefficient vehicles are dropping. In Australia the local vehicle manufacturing industry is in hot water because it's based on making large 6 cylinder cars. Sales of 6 cylinder cars have been dropping markedly. Mistubishi has closed its factory. Ford & GM Holden have cut production and staffing. Ford has also announced plans to begin making four cylinder cars here - though it will probably take a couple of years for them to tool up.
Looking at the remaining buyers for 6 cylinder cars, they're mostly fleet buyers. If a car is sold to a households, it will be kept on the road for 20 years or more, probably going through 3 or 4 owners in that time. Fleet (note: this is a term used in the vehicle industry and is different from the usage of "fleet" above) vehicles, however, are usually run a lot harder and often are written off after about 3 years. At a certain price point for petrol, fleet buyers will shift away from the Falcons & Commodores en masse and the effect on average fuel consumption will be fairly rapid.
In Melbourne, the rising price of petrol has provoked a major switch towards public transport, to the extent that the sytem is now running at capacity. The newspapers are full of bitter complaints about over-crowded trains, so it is clear that even at present prices, there is considerable latent demand for a switch in travel modes. Invest in public transport and watch travellers fill the trains & trams as fast as you put them in service. As petrol prices increase, this will become an even greater pressure and will eventually overpower the road lobby.
Finally, the rising price of petrol is causing an increase in the geographic price gradient of real estate in major cities like Melbourne & Sydney. The first effect has been a reversal of the long-term trend for a decline in population density in the inner suburbs. This will accelerate. At a certain petrol price, people will decide that they are prepared to live in a shoe-box if that's what it takes to let them travel to where they need to be (e.g. work, study, essential services). While the outer suburbs will be full of McMansions that the owners can't give away, the city, the inner suburbs and certain other favoured locations will fill up with people rapidly:
* Luxury hotels which will go broke because of the collapse of the tourist trade will be converted to residential accommodation;
* People with large homes in inner suburbs but who are thrown out of their job through recession and/or Peak Oil undermining the economics of their industry will have rooms to rent. Before the inner suburbs became fashionable, there were many large houses which had been built 100 years ago as expensive homes for rich people, but had been converted during recessions to boarding houses. This phenomenon will return;
* High petrol prices will also bring about a resurgence in medium and high density development. Not only will demand skyrocket for good locations (as noted above), but fewer people will be able to afford to go up-market with renovations etc. The general level of maintenance of the housing stock will therefore decline and houses that come up for sale will therefore be a good deal more likely to be bought by developers.
There are some factors which will act as flies in the ointment, though. First, the Save Our Suburbs mob will do their level best to keep out the riff-raff by preventing medium-density development. Eventually their cries of NIMBY will be overwhelmed, but they'll be a drag on the inevitable adjustment process. Second, so much of the modern housing stock is based on open plan design, which assumes that energy is virtually free. Doors will come into fashion again when people find that they can only afford to heat one room in winter. This will be expensive, though, to retro-fit to all modern and renovated housing.
So, I'm not as big a doomer as many of the commentators here. People will adjust, though not without a lot of pain and even a substantial dose of bankruptcy. But adjust they will. If a couple have jobs that take them long distances in different commuting directions, one may decide to take a lower-paying job a lot closer to home because they'll come out ahead after transport costs are deducted. And so forth. People will have to adapt to a new lifestyle, but adapt they will.
You are probably right about the fact the significantly higher prices are possible.
The model I have generated is premised on there being a free and fair market in oil. There is no allowance for supply restrictions or market speculation simply because you cannot sensibly predict the effects of these actions. I prefer to think of these graphs as a floor price and these other unpredictable factors will drive the price higher than this level on occasions. The frequency of these occasions will grow over time.
Giddaye, Clifford (I see your name pop up a bit around the place).
I'm one of those Average Joe / Average IQ blokes that stumbled across the notion of PO sometime last year (curse that film, "A Crude Awakening"!). As a father of three, all I care about is my kids future, so have been taking an interest in sites like TOD to try and get some sort of handle of where the world is headed.
While I agree fuel prices could be seen as an indicator the PO notion is happening, I still find it difficult to accept for very simple reasons: The MS papers, radio, TV stations don't acknowledge it; very, very few of my friends, family or colleagues had ever heard of it (P. Coyle? Who's that? was one response); my mechanic doesn't believe it; and the owner of the local petrol station just rolls his eyes and says, "Nah, there's plenty of it left".
So I guess I'll just move on, business as usual and all that, wish all you TODsters the best and get back to sleeping properly at night. If nothing else, your stories have been great reading!
Regards, Matthew Blain (Melbourne, Aus)
Hi, Joe Average.
It's good to remember that there is always a lag between the discovery of new knowledge and when it becomes generally known.
As the price of oil continues its rise and if you should choose to come back to visit, you'll be welcome.
-Andre'
Matthew,
I recently went to a seminar where Richard Neville (hippy futurist)spoke about listening to the weak signals to really get the full picture. MSM does report on Peak Oil but they report the symptoms rather than the cause. You just need to learn how to read it. Drumbeat and the Bullroarer are fantastic summaries but theere is a motza of other stuff out there, which appears completely unrelated to oil, but if you follow the threads will lead back to oil.
At some point someone in a position of power is going to crack and say "What the hell is going on with oil. Don't keep feeding me the bullshit, I want to know what the deal is with $300 barrel oil. Why is it that high? it didn't just happen by itself. There must be a root cause" Then the MSM will be all over it and if if you have not prepared yourself by then, it will be too late. Options for the masses to make better living arrangements will rapidly close.
Journey Well.
Matthew Blain,
Well, First off I've got to say 3 things.
1. Your mechanic and petrol station are not a reliable source for economics or petroleum geology.
2. The average person doesn't give a shit or care, on average.
3. It has been all over the mainstream media if you've paid attention, but the MSM only puts entertaining like paris hilton on the front cover.
4. Seriously, if you wanted advice about your children would you listen to the MSM, your colleagues, the owner of the local petrol station owner or your mechanic, do some research and figure it out for yourself mate?
Let me ask you this?
Why would Bill Clinton, Warren Buffet, T Boone Pickens, Matthew Simmons, The CEO of Conoco-phillips, the Former VP of Saudi Aramco Sadad Al-Husenni, The VP of Lukoil Fedun, The President of Total, The CEO of Shell and 10 Congressmen, Several Mayors and cities and volumes of respected petroleum engineers, geophysicist and petroleum geologist all be concerned about peak oil while you shouldn't? Most people don't take the time to do the research but that's fine because their loss can be my gain. Good luck though
Swords,
Just finished watching "I Am Legend" with the wife (why'd it have to turn into a zombie movie?!) and thought I'd check in one last time before bed. It occured to me, might the bleakness of the first half of the movie be an exagerated expression of what life might be like after a few more decades of business as usual?
And that's my point. To me, an Average Joe with limited sources such as yourselves to converse with (further - and not to offend - it doesn't help that I don't know any of you from a bar of soap, much less all the respected names you mention) and though I completely understand Mother Nature only produced so much of the stuff, the concept of Peak Oil doesn't FEEL REAL to me. I'm not saying PO is nonsense - indeed, a tipping point makes perfect sense - it's just that at this point in time I find it difficult to accept: THAT LIFE AS WE KNOW IT MIGHT BE COMING TO AN END?!
It almost feels like an idea for a movie, a good yarn... Actually, as it stands, a conversation killer!
Swords, I AM concerned (about all sorts of things) and HAVE been trying to figure it out, which is why I've been visiting here these past months, as well as e-mailing local media figures (the sensible sounding ones that is, though not much return there. Even tried someone at ASPO - forget who - without answer). The trouble is I'm no rocket-scientist (clearly!), or a person of power or influence, or someone "in the know" and as far as the research goes, most of what you guys write about goes way over my head.
But even as I see oil hit $122 a barrel, while record car sales continue in this Land Down Under, I think what can I do about it anyway? Get smarter? How's that going to help? So FOR THE MOMENT, as I look out for the front-cover headline somewhere above the picture of Britney Spears, "World Running Out Of Affordable Oil", all I can hope is that you guys (and gals) are missing something.
But if you're right, at least I won't be surprised.
Cheers, Matt B
For the record, I take the education of my kids very seriously. The eldest (school captain last year) is at the pointy end of her class in an accelerated learning program - also plays a great game of tennis; and her little brother is hot on her heals. Such opportunities kids have these days. I hope they continue.
Matt,
I have three kids too and they all have great talents. But I don't sit around and passively hope anything for them. I take them out gardening. I teach them how to read whats happening around them to give them a bit of rat cunning. I teach them how to cook and how to use google to suck up as much knowledge as they can,just in case. I've adopted the no regrets appraoch to life. I don't teach my kids to be afraid of the future, I am teaching them how to be prepared for wahtever comes down at them.
You sound like you're just a little too attached to your comfy middle class lifestyle and not quite ready to accept the possibility that it all might go sideways any time soon.
As Phoenix says in his opening paragraph, all of us have gonne through a moment of shocked disbelief as we have absorbed Peak Oil and its potential ramifications. The truth is none of us really know what the future holds. By exploring the scenarios however you can learn a little bit each day and start to mitigate bit by bit.
I'm sure your kids are great tennis players, and I'm sure you're proud of them. BUt you need to ask yourself this question: If TSHTF have I done enough to give them the necessary skills to survive and prosper in a world where the oil ration is going to be severely curtailed?
And I don't buy your Joe Average excuse either. You seem like a pretty articulate guy to me. I suggest you go into Dymocks and buy The Long Emergency by James Howard Kunstler. Read it, absorb it. Take a week off work and recover, the come back and join us here on The Oil Drum for counselling and support.
OK Termoil, you've convinced me to keep the door open. But if it's OK, I'll still try and get some answers from local personalities - finance talking-heads, editors of motor magazines, presidents of car associations and the like (perhaps I'll even write to a few ministers, not that I'd hold much hope - the Australian Government can't even make a decision whether to ban plastic shopping bags or not!).
For the record, I read David Strahan's "The Last Oil Shock" late last year, which pretty well supported everything I saw in that film. Probably need to read it again along with your book suggestion. Also read Richard Dawkins', "The God Delusion" recently... Who's right and who's wrong about such things?
At the end of the day, it's still trusted faces and headlines that will convince me.
Thanks for replying, Matt B
PS. Don't Average Joes exist in "Middle Class"? That is, Average / Middle? I guess I am pretty handy with a trowel and hammer!
You read books. That alone puts you way past the "äverage" joe.
In my area, Northwest US, people fall into two categories when you talk to them about PO: those who have never heard of it and think you're a kook; and, those who have heard of it, don't believe it, and think you're a kook. Perhaps a lot more people would believe we have a PO problem if the powers that be in GOVERNMENT (not industry --> "gougers" -- and not Peak Oil Theorists --> kooks) would put their PR fears aside and make an unequivocal statement that PO is here and we have to get serious about the problem. Of course, fat chance of that happening...
In the meantime, they are merrily buying SUVs and giant pickups -- and getting great deals!
Thank you for sharing your model. I like the pragmatic engineering feel of it. FWIW in my personal experience as an engineer, your approach often yields a very close model to actual for at least short time frames of 2-3 years. In years out beyond that, more possible error, but empirically it sure looks like some parts of the base model are dead on. The whole competition for finite resources is core to your model and is what I expect to occur. I wouldn't give economists a second of thought or any respect. As some later commentator put it, they'll come around in a few years but the conservative nature of most highly paid economists is detrimental to making progressive insights using the frightening data that is accumulating now.
I did a conversion to USD per gallon and you can simply multiply A$/L by 4 to get USD/gal. I think the gasoline prices in USD/gal sound reasonable too. It keeps sneaking up over the next few years but by 2016 the hurt will be felt by most in USA (they'll feel it sooner than that but realization that TSHTF is really spraying brown all-day, every-day will likely take much longer, IMHO :-/ )
I agree with other posters, if you would be willing to share the actual Excel spreadsheet, this would radically help more discussion and evolution of the model. I'm not sure if you are seeking recognition or using the model for personal gain & planning. It really is a good chassis and could foster more development and thinking. So please dare to share. (Not to mention clog up TOD for a while with hot discussion :-)) It would be fun to watch though!
Interesting work.
Is it possible to share the actual figures on the assumptions you have made, especially the rate of renewables substitution?
The substitution rate is not as simple as a fixed dependancy on oil price. Unfortunately it also has a significant time lag. I have tried to model this time lag.
In terms of real numbers I have a total (renewables plus substitutes) of 6.3 Mbpd by 2020.
Thanks for the reply.
I understand that you are in a somewhat delicate position being employed within the industry, but I wonder if it would be possible to post the spreadsheet showing all figures and assumptions?
Anonymity would still cast it's kindly cloak!
Anyway, many thanks for what you have so far shared and the valuable insights it gives.
This is impressive work, using sterling logic. It is limited only by the lack of accurate information.
I was wondering if you might explain what role a bell curve plays in your calculation. I did not realize that statistical analysis was required for a prediction of this kind.
You point out that, in a hard-scarcity situation, a commodity price is set by the threshold at which successively stronger low bidders drop out of the market. That simple point should be disseminated. I hope it receives some attention in the world press.
Sadly, in the U.S. no major media company is likely to publish anything so terrifyingly clear and logical on the subject of commodity allocation. Any such revelation might rattle the cage of denial in which we USA-ans are expected to remain confined indefinitely. The real sin against "patriotism" here is to reveal some fact that threatens to discourage the populace, even momentarily. Like any confidence game, the "demand-driven economy" is mortally afraid of reality.
Well, I'm a reporter with Wired, and I'm (at least) thinking about it... (Not to derail the main discussion but here's the problem with something like this making it into the MSM: A) It's hard to know how to get into a story of this magnitude as B) editors are not exactly prone to running stories about models C) from anonymous sources, even ones that clearly have done some great thinking and analysis.
If Phoenix were willing to go on the record with his energy background fully presented and send his model to some economists or other specialists, etc. Then we could really get a story going. Just saying.
I am an analyst with one of the Big Four. Phoenix's model would not survive contact with our economic analysts because:
1. It is still too immature and relies heavily on guys in the industry providing a "best guess".
2. It flies in the face of everything we have assumed thus far.
The fact that phoenix's model has made better predictions than anything that we have come up with is really immaterial at this time. I am not trying to denigrate my colleagues - they are intelligent, hard working and generally open to new ideas. Eighteen months or two years from now they will be willing to talk about this idea. But not today.
I will contact phoenix and ask him to reply to you, but all of us have jobs. We need to buy farmland out in the country, install watertanks etc. A "career limiting move" might not be what phoenix has in mind. Anyhow, I will contact him and let him speak for himself.
The ABC news tonight had two separate price predictions Goldmans: $200 and CitiBank: $40.
I think one of them needs you Phoenix - great post.
...and the last time I heard oil prices mentioned on CNBC they called it a bubble...at what price point does that end, $200 or $40? I think they are going to stall until one or the other is reached...too much rides on their opinion, like advertisment revenue associated with a rising stock market.
Once they stop calling it a bubble, it will burst..
Think contrarian.
Sixteen years ago, while attending a composites conference, I sat next to the Director of Advanced Engineering for GM. I told him that if he wanted to see a paradigm shift in his industry, he needed to hire some farmers, because farmers solve engineering problems all the time but most haven't been to engineering school, so they don't know the "correct" way to solve a problem. They go ahead and solve the problem anyway, often in very creative fashion, because their minds are unconstrained by conventional ways of thinking.
I've noticed that economists tend to have a very narrow education, being grossly lacking in botany, biology, anthropology, geology and environmental science in general. I wouldn't be too concerned about the evaluation of industry economists of Phoenix's oil price model. It's obvious that the entire industry is caught in a rut, a particularly virulent example of group think, and will have to be rescued from the outside.
Fred Schumacher
retired farmer
member, Mankato (Minnesota) Peak Oil Task Force
Alexis,
Here's the rub, or the caution, having economists review the theory. There are some that would be willing to look beyond orthodoxy, but they will surely be countered by the traditional "balanced opinion."
I feel somewhat qualified to comment on both areas as I am an engineer and I minored in economics. Phoenix's perspective is dead on about the traditional economic models that seem to be based on infinite supply. I had the same gut feeling this wouldn't measure up in the long run.
Wired hasn't been shy about publishing controversial subjects, but I guess this hits too close to home for many. Frankly, I don't like looking at those price projections either. I think there has to be some major disruption to cause a redefining of the model (i.e. war on a major multi-national scale).
A result of my undergrad thesis was the very beginning of dynamic modeling technology. The postulate based on experimentation and good old number crunching was that highly complex systems cannot be defined by a static model over time. The boundary parameters can remain static, but their functional relationship can change, thus causing a reshaping of the functions such as feedback, motive force, output level, etc.
In retrospect, it could be the physical proof of the axiom linear thinking is dangerous.
I would hope influential academics and professionals would take your model into serious consideration. Too bad being just plain right versus far off straight line projections ought to be enough. It is sad, really sad that prurient interest is more important than fulfilling one's duty to the public good which is a cornerstone of professional obligation.
I can't wait till I get my model together what I found is that complex systems post peak are almost impossible to model but they fall into two major groups collapse and a exponential decline. The latter arises from the central limit theorem. The former from the massive amount of coupling that takes place when a complex system becomes resource constrained especially if the resource is not renewable or has a renewable rate greater than the consumption rate. Despite the literature on collapse most of the approaches fall into a predator prey model that only deals with one type of feedback loop. I've not been happy with the literature on the collapse of complex systems. I've come up with Nate Hagens with a concept of coupled logistic functions that get steeper over time as extraction rates increase. The final collapse is the result of effectively eating the last supply of the resource with the final logistic. The nice aspect is it seems to keep both consumption rate and the population of consumers high right to the bitter end.
More generally it seems that the system becomes a group of coupled harmonic oscillators with increasingly steep wells or increasing frequencies. Think of turning a thousand amped microphones sitting together on cranking the amplifiers and the feedback loop.
A experiment I'm keen to perform :)
The opposite case of a exponential decay is a group of oscillators that become uncoupled and generally widen effectively disappearing over time although they are uncoupled so some can sharpen and disappear. But in my opinion this requires a really slow change like a decaying climate. If you think about it post peak aggressive moves will be made to decouple the global economy as fast as possible so the decoupling case is easy to understand and it matches the central limit theorem thus collapse must be the coupling case by default the central limit theorem actually eliminates all other cases except the one where it does not hold i.e coupling.
In any case I'm giving away my punch line to prove collapse you only need to prove coupling and thence the central limit theorem does not apply.
Could somebody interpret memmel’s manifestos for me? It’s as if he transmits FM and I receive Betamax. I like his ideas, but I often feel like I’m bobbing for an apple when I read his posts.
No disrespect intended to memmel, it’s just … I’m not getting it.
Fractional Flow left me feeling the same way. Other drummers helped me get the goosebumps. So if you “get” memmel, could you restate his ideas in your own words? Thanks.
Cold Camel
Heh, you said exactly what I was thinking :)
My take on memmel's post was that "coupling" is another word for business-as-usual globalisation, with economies based still on provision of credit, on just-in-time deliveries over large distances instead of stored inventories, on "growth".
By clinging tighter and tighter to those BAU methods, society will in affect be pushing down on the accelerator and careering headlong over the PO cliff ... at which point the finance system is irretrievably broken, JIT has failed, and the debt for our pursuit of infinite growth has been called in -> sudden and precipitous collapse.
"Decoupling" is a move away from globalisation & back to localised economies. Personally I doubt there's many places in the western world that would be capable of this - we've all become hooked like junkies on international trade to supply things we can't grow/build/pump ourselves. That aside, if an economy is decoupled its less prone to a domino-effect crash, but suffers from its own limits.
That's my take, which may or may not be more readable than memmel's post, and may or may not interpret his words correctly :)
Well, a complex system could fail in two ways. One of them is failing completely, when a small failure of one component leads a biger failure of another and so on. This way, everything goes down quite fast. The other way is from partial failures, where failure of one component leads to a smaller failure of the others and so on. This way, you have some troubles, but will end with a set of simpler systems at the end.
Also, he describes a precise mathematical model for both kinds of failure and proposes that the model may help we discovering what kind of failure to expect.
For non specialists some of the terms need defining for this to make much sense.
I look forward to when you have the time to lay your thoughts out in more detail.
The one which springs out as needing definition are 'central limit theorum'
The distinctions between the two models and how they relate to the central limit theorum are also unclear, as is the relation between this and other posts indicating that collapse would be fairly limited.
I think I have the general drift but can't be sure.
Just saw this and thought I may be able to help...
The central limit theorem (CLT) is a result in statistics that describes the result of averaging independent random variables. Roughly stated, one version of the theorem says that the average of N independent outcomes of a random variable with finite variance (a technical assumption), will approach a normal (gaussian) distribution with variance that scales as 1/N. Think of flipping a coin a large number of times, counting 1 for heads and -1 for tails, and averaging the result. The central limit theorem says that the average will behave like a bell-shaped distribution around zero, where the variance will decrease as you increase the number of times you flipped the coin (the chance of the average being far from zero will get smaller as you increase the number of times you flipped the coin).
This result only holds if the trials are independent ... imagine flipping 100 coins that were somehow glued together so that they all landed heads or tails together. Then the CLT would not apply, and the average value of the experiment would not typically be close to 0.
I think this is what memmel was referring to with coupling ... if global systems are decoupled then the outcome of collapse in one location of the earth will be independent of the outcome of collapse in a distant location, so one could use the CLT to get an "average" collapse condition that would make sense (i.e. many areas would be close to the average condition with high probability). But if the global system is "strongly coupled" through trade or financial networks then the outcome of collapse in different locations will not be independent, so it is more difficult to describe an "average case" outcome. Or, as the CLT wouldn't apply, there may be no reason to expect that the situation in any one place would be close to the "average case". We would all sink or swim together.
If I've misinterpreted what memmel was saying, I apologize.
Thanks for the reply.
In that case then you would have a whole range of likely outcomes depending on the degree of coupling - results are strongly normalised for a sequence of 100 coin throws, but less so for 10.
There is also the thought that although the collapse in a strongly linked system might be universal, the outcome might not be, as within particular societies the degree of linkage will vary.
For instance, some are nearer to subsistence agriculture than others, so the result of a collapse might be a return to the village, whereas other societies are much more heavily dependent.
IOW a universal collapse might itself imply the creation of a less strongly linked system, so at later stages a whole variety of results will obtain.
The effects on someone living in New York City will be different to those in small-town Middle America, although the impetus might be common.
Nah, sorry didn't help but thanks for trying!
Thats exactly what I'm saying I should add that most people think that WestTexas's ELP ( Economize,Localize Produce) concept makes a lot of sense from my approach it seems to have very strong mathematical support. Somehow it seems he nailed it.
But the reason I was more generic is this does not only apply to economies it also applies to oil extraction. How oil is extracted once a region has past peak is strongly coupled in many ways. The first coupling is simply attempts to maintain and increase production at the global level regional production effects price etc. If you buy into a coupled global economy then you realize that the oil industry is the most highly coupled global industry on the planet.
Think about that for a bit.