No. In the case of oil, there's low elasticity of substitution. Trillions of dollars of infrastructure run on oil, not alternative fuels. That's why spikes in the oil price cause recessions.[1]
The price of energy matters too, not just its derivative. We can make synthetic fuels that existing infrastructure can use but they're too expensive to support our civilization.[2]
Imagine your robot vacuum can run an hour on a charge and takes 15min to make a roundtrip to its charging station. If you move the charging station so the roundtrip takes 30min, you'll get dirty floors, and they'll still be dirty a year later. The robot's EROI has gone from 4 to 2 and it can only handle a smaller house, or one that sees less activity.
The EROI of a commodity like oil is approximately inversely proportional to its price. For commodities, competition brings price to the marginal cost of production, which is the cost of the embodied energy (so for fuels, this cost is unitless). The synthetic fuels are expensive because their synthesis is energy-intensive.
It's something policy makers should understand when they advertise energy projects as creating jobs. Manifestly, the more jobs an energy source requires, the worse it is. Energy is a means to an end not an end in itself.
>No. In the case of oil, there's low elasticity of substitution. Trillions of dollars of infrastructure run on oil, not alternative fuels.
Is this elasticity of substitution quantified? I'd like to read more about it if you have a link. My gut feeling is that this elasticity is improving (despite increasing oil consumption) due to general technological advancement and a high-speed globalised economy.
How well can we respond to a price spike now versus 30 years ago? Can we mitigate the economic impact of a price spike faster than we could 30 years ago? These are the trends I am interested in investigating.
In 2013, the world average price per GJ of coal was $3.63, of natural gas $6.81, and of oil $18.22. That's a factor of 5 ready for arbitrage in a $5T industry, sitting there for years at a time.[1]
The average age of cars on the road is 11 years, and apparently rising.[2]
Technology itself is notorious for lock-in effects. Windows 10 was announced today... I use a Dvorak keyboard (1936) but most still use QWERTY. You can ponder when Bret Victor's dreams will come true. In teaching technology, we're arguably no further than Papert was in 1980.[3][4]
In Garrett's model (op. cit.) the value of civilization's accumulated wealth in years of current production (GDP) does fall over time. In 1980 it was about 60 years. Today it's about 45 years. (In 1820, it was about 300 years.)
“a 10 percent permanent increase in oil prices reduces oil demand by about 0.7 percent after 20 years.” [1]
So to put things simpler : there is no elasticity in the price oil to speak of. It is almost like this : for all intents and purposes, people will die, rather than stop buying oil (in most of Northern Europe, of course, people will die without oil, ditto for most of Canada, Alaska, Russia, ...) (another way to say this would be : look at why the US/"West" went to war at any point after Vietnam. Decide for yourself why those wars happened, what would be the cause ? Oil price. Even ISIS and Sudan, to a significant extent, are oil wars. Well, it's muslim lunatics, but they wouldn't be a threat to anyone without oil)
As for peak oil, it's happening. Oil production has plateau'd since 2005. Conventional oil peaked in 1998, but horizontal drilling got it to go back up. In 2007 we really started to see a drop of 1-2%, but then the shale revolution happened (massive production spike, supposedly short-lived, in America matching declines in pretty much everywhere else in the world). Of course, the shale revolution skipped Europe. This is distorting the picture in America. In America it really looks like oil production has gone up, but that is not true globally.
Recently, (massive) consumption slowdowns in China have masked a small decline, but that's probably noise. To be honest, it is extremely scary that this has not lead to a significant price decline (talking 5-10% here, we've seen 1-2% at most).
I would also argue that while small declines are indeed noise, there's 2 factors that I feel still deserve some attention.
1) Since 2005, oil has been on a very small, but very (very) steady decline. The amounts are less than the noise, but it's hard looking at the graph and not see a decline.
2) Production has remained somewhat steady, but consumption has definitely shifted. Firstly internally : middle eastern countries' oil consumption has grown on the exponential curve. The same goes for pretty much all significant oil production countries. Since the internal market is subsidized in nearly all cases, this means that effective oil available on the international market (where e.g. Europe has to buy it) has gone down 5-8%.
3) The fact that the US did not have a way to export it's oil is masking fuel prices within the United States. It's one more factor that's making oil prices lower in the US than you'd expect given the rest of the world.
I don't think substitution to synthetics is very common for the reasons you mention. Oil substitutes such as ethanol have been driven by government policy not economics and would mostly disappear without subsidies. True synthetic oil products are very rare.
Instead persistent high oil prices and new technology have made previously uneconomic oil sources economically viable.
The price of energy matters too, not just its derivative. We can make synthetic fuels that existing infrastructure can use but they're too expensive to support our civilization.[2]
Imagine your robot vacuum can run an hour on a charge and takes 15min to make a roundtrip to its charging station. If you move the charging station so the roundtrip takes 30min, you'll get dirty floors, and they'll still be dirty a year later. The robot's EROI has gone from 4 to 2 and it can only handle a smaller house, or one that sees less activity.
The EROI of a commodity like oil is approximately inversely proportional to its price. For commodities, competition brings price to the marginal cost of production, which is the cost of the embodied energy (so for fuels, this cost is unitless). The synthetic fuels are expensive because their synthesis is energy-intensive.
It's something policy makers should understand when they advertise energy projects as creating jobs. Manifestly, the more jobs an energy source requires, the worse it is. Energy is a means to an end not an end in itself.
[1] http://econweb.ucsd.edu/~jhamilto/oil_history.pdf
[2] http://www.inscc.utah.edu/~tgarrett/Economics/