Non-Renewable Resources: Are They Really Finite?

[Parsad]

I thought this was a brilliant article in yesterday's Vancouver Sun.  Crowley's views on technology and how human innovate is totally identical to my own beliefs.  Cheers!

 

http://www.vancouversun.com/business/renewable+resources+they+really+finite/4856058/story.html

[Myth465]

Horrible title but very good read thanks for the link. Humm, inmo we see things playing out quite similarly I just predict a nice windfall for current low price producers as this plays out.

[bargainman]

I have a tough time with this one.  I see both sides of the argument I'm just not sure where I fall.  Ray Kurzweil, the famous futurist and AI expert, is fond of pointing out that innovation is actually increasing exponentially, but we think of it increasing linearly.  Seeing many examples of exponential innovation, I tend to agree.  But there are many things that don't improve exponentially. Anyone ever heard of a bifurcation diagram?

 

http://en.wikipedia.org/wiki/Bifurcation_diagram

 

I'm far from an expert, but the basic idea is that you have a simple population equation with a rate of growth, and some factor for emulating carrying capacity.  The diagram graphs the final population, per the simple formula, versus the rate of growth.  What ends up happening is that when you get started the population converges to a single point.  As the rate goes up, the population fluctuates between 2 points (high population, results in death, low population, results in plentiful resources which leads back to high population etc).  Then it bifurcates into 4 points and 8 points etc.. but then there is a point at which the points on the graph are completely chaotic and unpredictable.  As the rate moves up you get some predictable points again, and then chaos again.  So what am I talking about?  Well, I'd agree with the opinions in the article posted if I believed that things moved slowly and linearly.  But since a very simple population equation can lead to chaotic action, it's not a stretch for me to believe that temporary blips in resources can and will lead to mass unforeseeable consequences.  I guess much like Taleb argues.  Take also for example, the island of Nauru, and the correct predictions of peak oil in the US by Hubbert (in spite of rididcule by his peers), among others, and I think we'd agree that humanity is unprepared for major shifts, and even denies they are coming.  I mean some of that is the basis for behavioral finance... 

 

So the optimist in me who wants to agree with the article and wants to believe that humanity can overcome, is looking at this exponential population growth, the linear or less growth in topsoil productivity, the fact that it takes years to get a new mine out (for things like fertilizer), and wonders if Thomas Malthus might have the last laugh...

 

I think it's too late on sunday night and I should get outta here!  ;D

[netnet]

Sigh,

 

When will economists realize what the laws of thermodynamics are?

 

And when will people realize the absolute difficulty of predictions that you really have to have a probability space associated with the outcome.  Furthermore attaching a definite time makes predictions that much harder, i.e. suppose Paul Ehrlich was right he was just off by twenty years.  Or even Malthus was right!

 

First, the idea that oil or any other resource is infinite is ludicrous.  Second, the reality is that today, we humans have the ability to affect the virtually the entire planet.  In previous eras our affect was only in localized areas. In Roman times, North Africa was a granary unencroached by the Sahara!  Third, we were not bumping up against hard constraints.  (Although the people who died as a result of depletions in Easter Island or Greenland might disagree.  Nevertheless, when 1 million people wanted more whale oil, the switch to kerosene was possible.)

 

Would that everything is okay and there is no such thing as peak conventional oil (most agree that we have reached it by the way).  We could have the well fed turkey problem, i.e. every day is good until Thanksgiving comes around and whoops, life ain't so good.  The essence of the argument in the Vancouver Sun is that there are no hard constraints and Thanksgiving is never going to come.  Which means that there will always be a good substitute for whatever becomes scarce.  I hope for my children's children's children this is true. I sure don't want me or them to be the turkey!

 

 

[Uccmal]

That article makes me think of the people who are mining neodynium in China, or picking coffee beans in South America.  Their lot is better?

 

Its way too reductionist and focussed on one small segment of the population.  I agree that human ingenuity has value but I also think that there are curveballs that will get thrown.  Sometimes we know they are coming as in Peak oil, or global climate change, and sometimes we dont, such as the Japanese Earthquake, Hiroshima, or Nagasaki.  The real presence of human ingenuity occurs when we detect and deal with coming problems such as Y2K. 

 

He is also off base in total costs for oil usage.  There are so many externalities built into oil production and subsidized by society at large that it is impossible to say with any accuracy that oil is cheaper now than alternatives. 

 

The Turkey analogy is a good one.

[Guest VAL9000]

I'm probably in the minority with Parsad and Crowley in that I'm a loyal techno-utopian.  I spent some of this morning trying to find the article that converted me (I think it was in Wired magazine, sometime between 1995 - 2000), but I couldn't locate it.  The basic premise of the opinion piece was that human ingenuity will always overcome scarcity, therefore you should focus on people instead of natural resources.

 

This article has some flawed inputs and flawed reasoning, but the point is clear - the combination of incentives, scale and time will result in a move away from the oil standard.  Or, at least a marginalization of oil in the system of the world.  Intuitively, we all know that this will happen.  It has to: oil isn't an infinitely replenishing resource, we are using lots of it, therefore we will use it up, therefore we will be forced to move off of the oil standard when it's all gone.  This article alludes to the idea that we're discounting this future-state back to the present day, whereby the cost of not reducing our oil consumption with respect to our oil production is reflected in the high price of oil.  The high price of oil is the incentive to invent new techniques for extraction and develop technologies that minimize use.

 

The evidence that I see around me regarding recent developments in transportation appear to prove out the article's premise:

- The Prius went on sale in Japan in 1997.  Just 14 years later, Toyota has sold about 3 million hybrid vehicles worldwide.  That's not a huge % of the total market, but when you consider you pay a premium of about $3,000-$5,000 for a hybrid engine, you can say that the market has validated Toyota's idea to the tune of 9-15 billion dollars.  And that's just Toyota.

- Electric vehicles are actually happening.  I've seen them on the road!  Sure they're imperfect, but they're amazing if you consider that the Tesla Roadster was only introduced to the market in 2008.  Tesla has gone public, and now GM and Nissan have seriously entered the fray.

- Experimentation in the market.  I see a lot of crazy stuff these days.  No clear winners, but a lot of attempts: natural gas powered buses, trucks, and cabs.  Bio fuels.  Electric vehicles.  Solar and wind farms.  Smart grids.  The experimentation is a sign of the research and development process in motion.  There's plenty of experimentation on the production side, too - ultra deep water drilling, oil sands, and well stimulation techniques come to mind.

 

Energy production and conservation are high priority challenges for the supply and demand enablers in the energy market.  It's mind-blowing when you consider the progress we've made over the past 10 years compared to the 10 years prior..  and you can thank the price of oil (or the forecasted price of oil) for that progress.  With prices low, there's no opportunity to substitute.  The cost of change is too high.  With oil prices high, the entire industry is endangered by those who are motivated and persistent enough to capture the profit opportunity.

[value-is-what-you-get]

A non-renewable resource is finite by definition - the question is WHEN?

 

I'm on the human ingenuity side of things however any big social change can't happen without leadership in government which is sort of questionable at this point.  The level to which oil is ferreted into our fabric of life is astounding.  Look at all the products made from petroleum!  We need it for a lot more than pumping into our tanks and as such a basic input into so many products should be viewed as vital to our economic well being far beyond how much it costs to fill the tank.

 

The cost to electrify a household with solar panels done on a large scale solar farm type facility (like the one recently completed in Sarnia Ontario) is about $30K.  There are 120,000,000 households more or less in the US.  If the Federal government were to pay in full for enough solar generation to power everyone's home, it would run about 5% of net government tax receipts for 25 years or so.  This is on par with annual military spending in Iraq and Afghanistan over the last 10 years.  If, like we are doing in Ontario, they were to merely subsidize private industry to complete the buildout (a better option imo) it could be done for fractions of that cost and probably a lot quicker too.  What is really lacking is political leadership and will.  There are trillions of dollars of profit still to be pumped out of the ground so why rock the boat now?

 

People hate change - apparently more than being gouged at the gas pump.  I agree with Munger that it is completely obvious that we must harness the sun's power directly, and we should probably get on with it.  All the other energy sources we currently use are stores of the suns energy via chemical derivations and as such are simply side trips away from a direct connection via photovoltaics.  Oil should be a battery/emergency supply in the event of catastrophe (asteroid etc) as it packs a lot of thermodynamic punch in a small volume.  This idea was first voiced by the Iranian Oil Minister.  Anything less than that (like making plastic McToys or driving to the store for a chocolate bar) can be fulfilled by infinitely renewable and plentiful sunshine.  There's plenty of it so waste as much as you can afford!!

 

As Carl Sagan said we are basically stardust collecting and using starlight.

 

There you have it - all the answers!  Appoint me grand ruler and I'll solve all the problems from right here in my chair! :D

[Parsad]

People hate change - apparently more than being gouged at the gas pump.  I agree with Munger that it is completely obvious that we must harness the sun's power directly, and we should probably get on with it.

 

I just read an article on the weekend that using nanotechnology and thin-film technology, they will be able to advance the efficiency of solar photocells by 10 fold in the next few years.  The thin film technology will allow us to put photocells into roofing shingles, car roofs, exterior of clothing, etc.  You name it!  This technology isn't some distant vision, but could be in production in the next few years, if not sooner. 

 

Think about it.  We are on the verge of bringing extinct animals back to life.  Several private companies are trying to resurrect the Mastadon.  On-land fish farms are producing fish that avoid the bacterial risks of water-based fish farms.  At risk species in the next 20 years may not exist, as advances in biology will allow us to reproduce organisms on the verge of extinction. 

 

When I was a biology student 20 years ago, it was only a dream to do the things we can do today.  We've mapped the human genome!  There is a very distinct possibility that in the next 20-40 years, several diseases that are incurable today will go the way of polio.  I'm an absolute believer in technology, and marvel at the ingenuity of humanity!  Cheers! 

[Guest VAL9000]

Anything less than that (like making plastic McToys or driving to the store for a chocolate bar) can be fulfilled by infinitely renewable and plentiful sunshine.  There's plenty of it so waste as much as you can afford!!

Interesting examples.  Aren't plastics made from oil?  And I bet the fertilizer used to grow the plants in that chocolate bar are also derived from oil.  We still have a long, long way to go to substitute out oil, but I think if we focus on transportation and electricity generation we'll have a lot more room to maneuver.

 

I just read an article on the weekend that using nanotechnology and thin-film technology, they will be able to advance the efficiency of solar photocells by 10 fold in the next few years.

 

Not sure about that claim..  Efficiency today is already at 15%.  A 10-fold increase would imply 150% efficiency.  Of course if you could do that, you'd _really_ be on to something!  An important efficiency barrier relates to manufacturing costs.  Since the sun is free, the greatest concern is capital cost and maintenance.  Bringing the total cost of ownership down will help proliferate the adoption of solar over traditional fossil fuel power generators.

 

[Parsad]

Not sure about that claim..  Efficiency today is already at 15%.  A 10-fold increase would imply 150% efficiency.  Of course if you could do that, you'd _really_ be on to something!  An important efficiency barrier relates to manufacturing costs.  Since the sun is free, the greatest concern is capital cost and maintenance.  Bringing the total cost of ownership down will help proliferate the adoption of solar over traditional fossil fuel power generators.

 

I found the article.  Sorry about that...not a few years out, but in ten years they believe they could replace photovoltaic.  Cheers!

 

http://www.kansascity.com/2011/05/25/2904359/mu-prof-helping-develop-bright.html

[Guest VAL9000]

I found the article.  Sorry about that...not a few years out, but in ten years they believe they could replace photovoltaic.  Cheers!

 

http://www.kansascity.com/2011/05/25/2904359/mu-prof-helping-develop-bright.html

Hehe, no worries.  I got lucky on that one.  I just read this book "Grumby" where the exact same speculation ("increasing solar efficiency by an order of magnitude") and argument ("100% efficiency cap") was used in a particularly funny context.  I was well prepared by chance :D

 

[Myth465]

Humm Peak oil or peak cheap energy like most things has a lot of sects. I dont believe in the doom and gloom variety . Its not that we dont have the capacity to move beyond the problem or issue. Its more that there is no leadership to do so in a smart efficient none painful way. I think as in most things in life, we will muddle through. Though in my opinion there will be pain and profits along the way. As with most crisis / events - my goal is to avoid the pain and enjoy the profits.

 

 

Ray is an interesting guy, I recommend Transcendent Man  if you have some time. Its thought provoking.

[alertmeipp]

I am just thinking - is copper or oil is better investment? They both have real demand, oil is not renewable, copper is somewhat renewable. But copper is more difficult to find alternative (as it's the cheapest) and is finite.

 

Thoughts?

[Ben Graham]

I thought this was a brilliant article in yesterday's Vancouver Sun.  Crowley's views on technology and how human innovate is totally identical to my own beliefs.  Cheers!

 

http://www.vancouversun.com/business/renewable+resources+they+really+finite/4856058/story.html

 

 

I'd like to include my two or three cents, as to what I believe is the primary lesson of this article.

 

                                      "Ingenuity"

 

The greatest natural resource of all is the human mind, combined with a creative imagination or innovation brings forth ideas.

 

 

Only two things exist: energy and matter. - Albert Einstein

 

The brain is matter.

 

To get ideas requires creative imagination which is energy that stimulates the brain.

[bargainman]

Personally of all the things, I'm most concerned about food production.  The latest letter by Grantham (I think that was it) talked about how top soil is being depleted quicker than it's being replaced, and how fertilizer is not being mined as quickly.  Also food supplies are subject to wilder swings and have potentially severe consequences (starvation/death/war).  The letter also talked about how the rate of improvement in crop growing efficiency has slowed, but the growth in the population is still exponential, and the growth in emerging markets for beef/western diets continues to strain farmland.  I think Mike Burry recently said that he was buying up farmland with access to water no?  I just wonder how much further we can increase food growing efficiency.  I'm pretty sure there's a long way to go with regards to electronics and nanotech and biology/disease management etc.  But I'm not so sure about food production.. Anyone have an opinion?

[Guest broxburnboy]

I don't know what the author of this fantasy has been smoking, but several of the logical premises are highly questionable or obviously false:

 

to wit:

"It may be popular, but it is quite incorrect to think of natural resources as not only exhaustible, but on the verge of being exhausted. If, for example, natural resources were getting scarcer, then the price would go up. That's part of what prices are for, to signal shortages and availability and to trigger exploration and innovation where required."

 

Many natural resources have already been exhausted, for example there are water shortages all over the globe from overuse and failure of human mind to conserve. We have already passed the point of Peak cheap oil and all subsequent oil will be consumed at gradually (hopefully) rising prices. Apparently the author expects future oil prices to fall back below pre-1976 levels (before the first supply shocks). 

 

http://www.chartsrus.com/chart1.php?image=http://www.sharelynx.com/chartsfixed/CRUDEOILlt.gif

 

Also consider the fate of the passenger pigeon, plains bison, right whale etc. I can tell you that the price of bluefin tuna sashimi has risen astronomically in the past 20 years and such price increases has not spurred the discovery of more bluefin tuna in fact it's spurred an all out genocidal assault on the remaining fish.

These are not isolated examples, in fact it is the norm. We have already reached the point of peak cheap water, cheap food, cheap oil, cheap gold, cheap iron ore and cheap children. It may be comforting but it is not rational to think of any of these things as inexhaustible and lunacy to think that their prices will go down.

 

Here's a real whopper (my italics):

 

"But the price of natural resources has been steady or else in decline for centuries, although the recent entry of developing countries like China into the marketplace may have moved natural resources prices temporarily to a higher level, not because of shortages, but because of China's fondness for old-fashioned and highly inefficient mercantilism."

 

The author is arguing that new demand from China has recently pushed commodity prices up, she doesn't elaborate on how such demand differs from the demand of other economies equally steeped in "highly inefficient mercantilism".

 

I could go on and on about the flawed logic and validity of "facts".. try viewing a historical price chart of copper for example, but perhaps its best to meditate on the state of the world economy. There has been recent violent social unrest  in Greece, Egypt, Syria, Tunisia, Libya, Saudi Arabia to name a few. The people are rioting because of higher food and other commodity prices.

They are not celebrating the imminent fall of food and energy prices based on the innovation of their esteemed politicians and bankers.

[Guest VAL9000]

Also consider the fate of the passenger pigeon, plains bison, right whale etc. I can tell you that the price of bluefin tuna sashimi has risen astronomically in the past 20 years and such price increases has not spurred the discovery of more bluefin tuna in fact it's spurred an all out genocidal assault on the remaining fish.

That's an interesting point regarding the difference between non-renewable commodities and renewable species.  For species, improved extraction techniques just result in accelerated extinction.  Even though the resource is technically renewable, we seem to be pretty good at killing off entire orders of species.

 

Unlike with commodities, where high price results in creative solutions related to supply and demand, a high price on a species seems to be a death knell.  It promotes further depletion.

 

I'm going to go ahead and offend my conservative friends here by saying that a big tax on fishing certain species and killing certain mammals / birds is probably a good idea.  I mean this in more of the industrial food production sense, not the hunting/gaming sense.

 

[ericd1]

It's kinda sci-fi thinking, but if we can produce oil from algae who knows what else we may be able to produce from altering the DNA of other plants and animals. We've been successfully altering corp seeds since the 1990's...

 

http://en.wikipedia.org/wiki/Genetically_modified_food

[tyska]

Personally of all the things, I'm most concerned about food production.  The latest letter by Grantham (I think that was it) talked about how top soil is being depleted quicker than it's being replaced, and how fertilizer is not being mined as quickly.  Also food supplies are subject to wilder swings and have potentially severe consequences (starvation/death/war).  The letter also talked about how the rate of improvement in crop growing efficiency has slowed, but the growth in the population is still exponential, and the growth in emerging markets for beef/western diets continues to strain farmland.  I think Mike Burry recently said that he was buying up farmland with access to water no?   I just wonder how much further we can increase food growing efficiency.  I'm pretty sure there's a long way to go with regards to electronics and nanotech and biology/disease management etc.  But I'm not so sure about food production.. Anyone have an opinion?

I would think one may have to differentiate between western diet and food production. As far as food production, imagine how much could be produced just in the cities with lawns taken out and produce growing in its place. Throw in a couple fruit trees per yard and one would have all that food with the same water and fertilizer use that was going into lawn. The micro climate of the city also allows for a longer growing season and different crop selections than the surrounding country.

I've read articles from people coming back from volunteering in food distribution programs in Africa. They were amazed in some areas to see tall grass growing that would be just burned off when dead. Asking the locals why they don't put a few chickens out or work up for a garden, they said it would just be stolen. So not so much of a food problem as a security problem.

You keep seeing articles about how these huge industrialized farms are the most efficient ways to produce food. One then wonders why the E.U., U.S., and Canadian ag. subsidy programs continue to be so well funded. Maybe we have too much government involvement in trying to direct what they feel the model of efficiency should be, instead of letting the market decide.

[ERICOPOLY]

You are already eating lots of insects:  http://ucanr.org/blogs/blogcore/postdetail.cfm?postnum=795

 

May as well just raise crickets and meal worms for dinner.  It's meant to be very easy to keep them, even if you don't have a yard.  Easier on the environment than raising cattle.

 

 

[Parsad]

Many natural resources have already been exhausted, for example there are water shortages all over the globe from overuse and failure of human mind to conserve.

 

Are there global shortages, or is there a disparity in how the resource is allocated.  I know for a fact that we Canadians, in particular in BC, consume multiple times more water per capita than our European counterparts, and probably 30-60 times more than our average Asian or African counterparts.  

 

http://www.environmentalindicators.com/htdocs/indicators/6wate.htm

 

From what I understand, that if North America alone moved from raising cows, pigs and other herd animals to legumes, grains, etc, we would be able to feed the entire world with little difficulty.  The question that arises:  Is there a shortage?  Or like poor management at a corporation...a misallocaton of assets?

 

I could go on and on about the flawed logic and validity of "facts".. try viewing a historical price chart of copper for example, but perhaps its best to meditate on the state of the world economy. There has been recent violent social unrest  in Greece, Egypt, Syria, Tunisia, Libya, Saudi Arabia to name a few. The people are rioting because of higher food and other commodity prices.

They are not celebrating the imminent fall of food and energy prices based on the innovation of their esteemed politicians and bankers.  

 

You're examining a relatively short period of time.  There were riots in the 70's over oil shortages and inflation.  Today, we consume half as much oil per capita as we did then.  

 

I believe the author was suggesting that the economics of supply and demand will force humanity to adjust their consumption and create alternatives to diminishing resources.  In other words, the resource never fully depletes as innovation and efficiencies decrease the overall consumption rate.  Cheers!

[Parsad]

I would think one may have to differentiate between western diet and food production. As far as food production, imagine how much could be produced just in the cities with lawns taken out and produce growing in its place. Throw in a couple fruit trees per yard and one would have all that food with the same water and fertilizer use that was going into lawn. The micro climate of the city also allows for a longer growing season and different crop selections than the surrounding country.

 

Actually, as suburban sprawl continues, and urban agricultural land diminishes, you will see vertical agriculture increasing.  Vancouver is already starting to experiment with this.  Cheers!

 

http://www.google.ca/search?q=vertical+agriculture&hl=en&rlz=1T4GGLD_enCA310CA310&prmd=ivns&tbm=isch&tbo=u&source=univ&sa=X&ei=LILkTfK6EI6WsgOAxokW&ved=0CEEQsAQ&biw=1257&bih=507

 

[Guest broxburnboy]

Also consider the fate of the passenger pigeon, plains bison, right whale etc. I can tell you that the price of bluefin tuna sashimi has risen astronomically in the past 20 years and such price increases has not spurred the discovery of more bluefin tuna in fact it's spurred an all out genocidal assault on the remaining fish.

That's an interesting point regarding the difference between non-renewable commodities and renewable species.  For species, improved extraction techniques just result in accelerated extinction.  Even though the resource is technically renewable, we seem to be pretty good at killing off entire orders of species.

 

Unlike with commodities, where high price results in creative solutions related to supply and demand, a high price on a species seems to be a death knell.  It promotes further depletion.

 

I'm going to go ahead and offend my conservative friends here by saying that a big tax on fishing certain species and killing certain mammals / birds is probably a good idea.  I mean this in more of the industrial food production sense, not the hunting/gaming sense.

 

 

The jist of the author's argument, as it's title implies, is that human ingenuity will overcome biological and ecological supply restraints, and in fact commodity prices (the costs of producing or extracting diminishing supplies) are in a long term decline which will continue through a temporary bubble effect caused by China's misconception that resources should be stockpiled.

This is simply denial of economic reality in defense of the indefensible premise that "greed is good". The reality is that there is such a thing as overconsumption and a limit to which the ecology can support. Resources are finite and depleting, i.e. we have borrowed tomorrow's resources for consumption today as reflected (albeit unevenly) in the global debt crisis.

That doesn't mean doom and gloom, but obviously we will have a corrective economic event(s) to bring demand and sustainable supply back into balance. Ever rising commodity prices (collapsing supply of cheap commodities) will be a feature of the correction.

Best not to drink this dose of consumerist Kool-Aid.

 

 

[value-is-what-you-get]

Actually, as suburban sprawl continues, and urban agricultural land diminishes, you will see vertical agriculture increasing.  Vancouver is already starting to experiment with this.  Cheers!

 

 

Here's just one example of getting 10X the crop yield on a per square foot basis as compared to standard greenhouses.

 

http://www.omegagarden.com/index.php?content_id=1521

 

There are also automatic secondary benefits to this type of innovation - like not having to truck in tomatoes from Mexico for starters and optimum use of water resources for seconders.  If this is economical (or becomes so due to escalating farmland, farmer input and transportation costs) then the secondary benefits accrue to society as a bonus!  Human ingenuity and innovation often contains these sort of bonuses not unlike a good margin of safety stock price with free call options on non-producing yet possible value creators thrown in. 

 

It's not much of a stretch to imagine a produce section at your local mass grocer that has these devices installed right on their rooftops above the produce section giving consumers tomatoes (or anything else they can grow in them) that were picked today!  Are you listening Galen Weston Jr.?

 

If Michael Burry's belief that good farmland with available water is severely underpriced right now, then this sort of thing will emerge in lockstep with escalating farm prices.

 

 

. . . and as an aside I just heard that Boston Pizza is renaming it's chain Vancouver Pizza until the playoffs are over (or should I say until the Canucks beat the Bruins!!)

[Guest VAL9000]

Here's just one example of getting 10X the crop yield on a per square foot basis as compared to standard greenhouses.

 

http://www.omegagarden.com/index.php?content_id=1521

 

This looks like the grow-op of the future :P

 

Does anyone else grow their own vegetables?  We have a small patch in our backyard that I hope to expand into a larger patch over time.  We grow things like tomatoes, cucumber, peas, beans, and zucchini.  We'll probably rotate into root vegetables this year, too.  It makes a lot of sense for us..  the food tastes better, it's cheaper, it's fresher and it's kinda fun (and sometimes frustrating).