The relationship between prices and natural resources is nonlinear. In other words, the market does not reflect long-term declines in natural resources such as oil. The market is like the float in a carburetor: as the engine demands more gas, the float falls and allows more gas to flow in from the tank. But the float has no information concerning the amount of gas left in the tank until the fuel line is unable to keep up with demand.

So it is with the market. As the demand for oil increases, the increase in price signals oil companies to pump more oil out of the ground – which lowers prices again. The oil market has no information about the amount of oil left in the ground until production is unable to keep up with demand.

In October 1980, Julian Simon challenged Paul Ehrlich and colleagues to a $1,000 bet that in ten years the price of any raw material they selected would fall (measured in constant 1980 dollars).

In October 1991, Ehrlich paid up. The prices of the five minerals chosen (copper, chrome, nickel, tin and tungsten) had dropped substantially. Obviously, prices did not reflect the fact that ten years’ worth of minerals had been taken out of the ground.

Simon demonstrated that prices do not reflect the decline of natural resources.

(From: <http://dieoff.com/page143.htm>)

The global economy burns energy to make money -- there is no substitute for energy. Although the economy treats energy just like any other resource, it’s not like any other resource. Energy is the precondition for all other resources.

The key to understanding energy issues is to look at the "energy price" of energy. Energy resources that consume more energy than they produce are worthless as sources of energy. This thermodynamic law applies no matter how high the "money price" of energy goes.

For example, if it takes more energy to search for and mine a barrel of oil than the energy recovered, then it makes no energy sense look for that barrel -- no matter how high the money price of oil goes. It will make no energy sense to look for oil in America after 2005.

During this coming century, the global economy will "run out of gas" as nearly all fossil energy sources become sinks. One can argue about the exact date this will occur, but the end of fossil energy -- and its dependent: the global economy -- are inevitable.

Forecasts about the abundance of oil are usually warped by inconsistent definitions of "reserves." In truth, every year for the past two decades the industry has pumped more oil than it has discovered, and production will soon be unable to keep up with rising demand.

According to a March, 1998, Scientific American article by Colin J.Campbell and Jean H. Laherrere Global oil production is expected to "peak" around 2005. (See THE END OF CHEAP OIL at < http://dieoff.com/page140.htm>

In November, 1997, the International Energy Agency (IEA) convened an Oil Conference in Paris. Laherrere and Campbell presented three papers on oil depletion (against Adelman and Lynch from MIT).

As a result of this conference, IEA prepared a paper for the G8 Energy Ministers’ Meeting in Moscow March, 31, 1998. IEA followed Laherrere and Campbell’s view and forecast a peak in conventional oil for the year 2010 at 78.9 million barrels per day and a decrease in 2020 at 72.2 million barrels per day. [source: Laherrere personal correspondence ]

(See WORLD ENERGY PROSPECTS TO 2020. <http://www.iea.org/g8/world/oilsup.htm>)

According to Richard Duncan, this represents a significant reversal of the IEA

position: "This is a real stand-down for them because until recently they were in the Julian Simon no-limits camp." [source: personal correspondence]

(See Duncan’s energy paper THE WORLD PETROLEUM LIFE-CYCLE at: <http://dieoff.com/page133.htm>)

Franco Bernabe, chief executive of the Italian oil company ENI SpA, expects the world to experience 1970s-style oil shocks starting sometime between 2000 and 2005. (See <http://www.forbes.com/forbes/98/0615/6112084a.htm> . Also see <http://reports.guardian.co.uk/ articles/1998/7/26/13026.html>) .

Unlike oil, gas is not transported cheaply. It can be piped around the continent, or for export purposes liquefied for transport by sea. Unlike oil or coal, its main competitors, it cannot be stored easily either. According to Campbell, global natural gas production is expected to "peak" a few years either side of 2020. [source: p. 119, THE COMING OIL CRISIS, by C. J. Campbell; Multi-Science Publishing Company & Petroconsultants, 1997. <http://www.amazon .com/exec/obidos/ASIN/0906522110> ]

Bernabe is more pessimistic and sees the peak in global natural gas production about ten years earlier, in the year 2010

(See <http://www.forbes.com/forbes/98/ 0615/6112084a.htm> Also see Riva: http://hubbert.mines.edu/news/v97n3/mkh-new4.html>)

The US Department of Energy says we have enough coal to last for 250 years: "... total coal resources of the Nation are large and that utilization at the current rate will not soon deplete them ... [source: DOE-EIA ] Also the US Geological Survey estimated that the United States has enough coal to last 250 years. [source: USGS Fact Sheet FS-157-96, July 1996, http://energy.usgs.gov/factsheets/nca/nca.html ]

Gee, that’s a lot of coal, and they ought to know! Right? Wrong! It seems that the Department of Energy forgot to consider the energy costs of mining coal when computing the size of this energy resource.

According to Gever et al., by the year 2040 it will require more energy to mine domestic coal than the energy recovered. In other words, if present trends continue, domestic coal will be "depleted" (will become an energy "sink") in 42 years (not 250 years) [ p. 67 ]!

(See the energy profit for domestic coal at <http://dieoff.com/page122.htm>)