There’s been a lot of discussion about claims that world oil output is going to reach a peak some time soon. If you look at the recent numbers, there’s a pretty good case to be made that world all output has already reached its peak at about 73 million barrels a day, a level reached in mid-2004, and sustained for the past two years.
Now there are lots of local factors that explain weak output in particular countries. Still, if the claims made by those who think oil output can keep on growing were correct, I would have expected the massive increase in prices (from a brief low of $10/barrel and a medium-term price of $20/barrel in the late 1990s to $75/barrel today) to produce a substantial expansion in supply.
This argument is pretty robust to whether oil producers believe that there is plenty of oil (implying that prices will come down again) or not. If prices are going to come down, then there’s a strong incentive to pump more in the short term, use secondary recovery from depleted wells and so on. If prices are going to stay high, there’s a strong incentive to bring large new fields online, even if they are in high cost locations. As far as I can see, neither of these things is happening.
Supposing that oil output has peaked, the obvious point to be made is that Peak Oil isn’t so bad. Sales of Hummers are plummeting, apparently, and lots more people are using buses (at least in Brisbane). And of course, the less oil there is to burn, the easier it will be to stabilise CO2 emissions (though we can’t just rely on Peak Oil – apart from anything else, there’s almost unlimited coal in the ground, far more than we can burn without frying the planet in the process).
Even if supplies have peaked (or, more plausibly, flattened out at the top of the curve), I doubt that prices will go much higher than this, though $100/barrel is certainly possible. If current prices are sustained, a lot of alternatives will become cost-competitive, as already seems to be happening with biofuels in the US. More importantly, demand is bound to respond more than it already has.
These graphs from the US DOE illustrate the long-run increase in oil output and the recent stagnation. (Looking at the data, I’m pretty confident that the time scale for the monthly data is out by a year – it should be 2004-6.)
John Quiggin 
Prof. Q,
I wouldn’t be too optimistic that, if peak oil has indeed been reached, that it’s automatically good news on the global warming front.
The trouble is that turning gas or coal into petrol or diesel puts out a lot of CO2 in the process, as well as the CO2 released when they are eventually burned. So, unless the “process CO2” is sequestered, we’ll end up with a lot more CO2 in the atmosphere per litre of liquid fuel.
PrQ,
I am not a technical analyst, but even to my eye there seems to be a disparity between the graphs. The top one shows a steady growth in output from 1983 and continuing – with 2 downturns in 1999 and 2002 – after both of which there has been a recovery to trend growth. No plateau there. If anything, there was an accelleration.
The second one, at the month level, shows minimal growth over the period 2002 to current.
Can you provide the actual numbers for production in b.p.d for each of the years 2000 to 2005 or at least link to the source of your data?
As a comparson, I would be also interested in the results of the Venezualan strikes, and the effective removal of output from Iraq over the period 2001 to current, on output. I feel that, without these, production may well have increased as you would otherwise expect.
Well said Robert. The EROEI coal-to-liquids, gas-to-liquids or any kind of synfuel is poor. We’ll all be putting a lot more CO2 in the air per kilometre driven than before. Mind you, as fuel prices skyrocket we’ll be driving a lot less.
There does seem to be something wrong with the graphs. The data is from the Energy Information Administration/Monthly Energy Review July 2006. I’ll try to fix this in the AM.
JQ – I think you will find that the EIA reports are a bit dodgy. Possibly the best analysis is from The Oil Drum. This one is a post on the plateau:
http://www.theoildrum.com/story/2006/6/14/25151/9885
And what could be wrong with the EIA reports:
http://www.theoildrum.com/story/2006/8/3/31559/92662
“Supposing that oil output has peaked, the obvious point to be made is that Peak Oil isn’t so bad. Sales of Hummers are plummeting, apparently, and lots more people are using buses (at least in Brisbane).”
I am not entirely sure that you grasp all the implications of Peak Oil. How are we going to grow ethanol without fossil fuel made and transported fertiliser? CTL does release a LOT of CO2 and has a much lower EROI than oil. Again another analysis from the Oil Drum on EROI
http://www.theoildrum.com/story/2006/8/2/114144/2387
My understanding is that major OPEC countries are not producing at their peak while a number
of non-opec countries have reached peak.
I was reading somewhere that our Saudi friends actually reduced oil production because they claimed that they couldn’t find buyers. I can’t remember the reference but it was a blog so I wouldn’t be too sure about the information:-)
There is an argument that the hi oil prices are a result of a speculative bubble.
My own feelings is that oil prices will return to $30/b after regime change in the US.
Rabee, My guess is about $40US/barrell. There are massive energy savings possible in China and India.
Like global warming this will be a hickup without long-term consequence. Markets will force substitutions – JWH is moved already with his daft LPG subsidies – but the world won’t end.
Harry,
I’ve seen a number arguments explaining the oil market:
1) The Environment partisans: it’s all about Peak Oil.
2) The Stop the Iraq War partisans: It’s all about Iran and the Shiites.
3) The US Liberals: What do you expect when oil men are in the White
House.
4) some “paper oil” traders: it’s a speculative bubble driven by
moms and dads investors (or investors for investors).
There is this argument, which I’m having trouble grasping:
http://dhatz.blogspot.com/2006/06/oil-to-38657-per-barrel.html‘
But looking at this graph
I see a spike when the Iraq war began, a
dip when Bush declared “Mission Accomplished”,
a spike when the first war with the Sader militias began (November
2004) and 141 US soldiers died. The rest of the spikes are almost
perfectly in tune with US threats against Iran over article IV of the
NPT. Finally, there was a recent spike (not shown) during the
Israel-Lebanon war (i.e., Israel-Iran war).
The upward trend is also consistent with how bad we are doing in Iraq
and how well Iran is doing. There is a perception that a strong Iran
means the likelihood of trouble in all Shiite areas in the Middle
East. As it happens God blessed the Shiites by putting the world’s
“sweet” oil reserves smack in the middle of their population centers.
So I guess if I war running this blog, I would have posted this item
under the Politics/Economics header rather than the Environment header.
Rabee – “My understanding is that major OPEC countries are not producing at their peak while a number of non-opec countries have reached peak.”
Not quite true. All the supergiant older fields like Ghawar, Burgan and Cantarell in decline. All OPEC countries firmly resist supplying accurate details of their reserves. The North Sea is in terminal depletion. The Saudis tried to claim that they could not sell their oil however it was possibly heavy sour that nobody can refine.
http://www.theoildrum.com/story/2006/8/13/232547/321
http://www.theoildrum.com/story/2006/1/20/193723/259
Harry Clarke – “Like global warming this will be a hickup without long-term consequence. Markets will force substitutions – JWH is moved already with his daft LPG subsidies – but the world won’t end.”
What substitues? Do you think the oil will last forever? Why do you imagine that global warming will produce no hiccups????
Whilst it is true that we do not know the reserves of OPEC nations one interesting fact to come from the four corners program on said topic was that both former Kuwaiti and Saudi minister of Oil or whatever their title is said that costs wee rising to produce oil thus indirectly giving evidence that both counties have peaked!
IMO, its impossible to know if oil has peaked or not. Most proven reserves are in countries that extremely secretive, and the big oil companies aren’t exactly open and honest either. What is clear is that the era of cheap, less environmentally destructive, oil is coming to an end.
High oil prices are good thing don’t get me wrong. As you say, it should put an end to the SUVs and Hummers, and encourage people to walk, bike and use public transport. The problem is EROEI. The optimists say there’s plenty of oil in the tar sands in Canada and Venezuela but these reserves have a very poor EROEI. For every three barrels of oil you produce you have to burn two (EROEI = 1.5:1) unlike Saudi crude where the EROEI is something like 10:1.
So we might be driving less and driving far more fuel-efficient vehicles, but each barrel of oil we consume has cost much more energy to produce and has put a lot more CO2 in the air. In addition, because you are burning fuel to make fuel you run down the resource much faster.
Like Ender, I recommend The Oil Drum. Yes, there are some hard-core doomers there, but also some high quality discussion.
I blogged on the Triple Crunch 2020 facing society a few days ago.
Remember that the price of oil is set (somewhat imperfectly ) by a cartel ie is not necessarily subject to free market explanation.
The optimum price for a cartel is just below the price that encourages substitute.
The cost of substitutes tends to rise as energy prices go up.
The price of substitutes increases as demand goes up.
Substitutes for oil become readily availble at about the $100/bbl price of oil ie it becomes economic to make the change to LPG/LNG Shale oil at this sustained price for oil.
Thus there wil be no energy crisis though world economic acitivity will be lower than it would have been if energy prices were lower (except in the energy related sector)
As for the climate, the increase in living standards in Asia (India and China etc etc) and hopefully Africa means that the only rational activities to spend money on is to adapt to the climate change as and where it occurs. eg move to the tropics where there will be the smallest relative change and no drought.
There is 1.2 million years of history that supports the assumption that humans have the capacity to adapt.
The climate change movement (not the climate change facts) seems to always come down to the need for actions that can only be taken by a centrally planned economy (I think experiencing the climate change may be a better option than central planning).
Rabee,
oil production is certainly affected by political/military events. But these events, in turns, aren’t themselves an indication of resource scarcity and resource insecurity ? Or do we still believe wars are fought for ideals?
taust,
Move to the tropics — sounds like a good plan, way better than (say) electrifying our transportation infrastructure and powering the grid with renewables, and (if we have to) nuclear.
None of this needs to be centrally planned. What we need is a price signal for carbon that reflects the damage it is doing to our planet. If the price is right, the market will sort it out.
BTW, I believe the EROEI for shale oil is even worse than for tar sands.
And Taust sums it all up beautifully when he/she says: “The climate change movement (not the climate change facts) seems to always come down to the need for actions that can only be taken by a centrally planned economy (I think experiencing the climate change may be a better option than central planning).”
The idea of coordinated action either within or across national borders is, of course, repugnant to those who think they will be OK (or at least relatively better off than others) in a world of higher prices and scarcer resources. To such people, the idea of an equitable and coordinated approach to either greenhouse or oil depletion is threatening.
This raises the further, and interesting, issue of the effect of increasing resource scarcity on inequality. I suspect it would be easy to show that, given a number of social groups with unequal access to resources, increasing overall scarcity would exacerbate the inequalities between them.
taust – “Substitutes for oil become readily availble at about the $100/bbl price of oil ie it becomes economic to make the change to LPG/LNG Shale oil at this sustained price for oil.”
The substitutes for oil, tar sands and shale oil, all require massive amounts of water and natural gas to refine. The amount of natural gas is limited as is water. It does not matter how high the price rises you cannot get a rooster to lay an egg, to paraphrase a quote by the head of ABARE. It does not matter how high the price is if there is no gas or water to refine the product.
“Thus there wil be no energy crisis though world economic acitivity will be lower than it would have been if energy prices were lower (except in the energy related sector)”
Perhaps but unless we adapt early then there will be a gap period where the economy could be seriously damaged.
“As for the climate, the increase in living standards in Asia (India and China etc etc) and hopefully Africa means that the only rational activities to spend money on is to adapt to the climate change as and where it occurs. eg move to the tropics where there will be the smallest relative change and no drought.”
What if the people already at the tropics do not want you there? What if there is not enough food and water and/or land at the tropics for you??? What if you are too poor to move????? What if the tropics gets too hot – we have an energy crisis you cannot just turn on more airconditioners???????
Simplistic statements like “oh well we will just move to the tropics” mean that you have not really thought through the implications of what you are saying. Populations cannot just move. They then become refugees and we know what we think of them in Australia.
I will try to backtrack the reference, but there was a very interesting paper by some physicists from France who simulated an economy with random distribution of assests (physical and human) with a random outcome from trades.
The resulting distribution of wealth fell within the range commonly experience ie 80% of the wealth owned by 10% of the people.
The benefit of free trade in this model was a faster cycling of people through the wealthy/poor categories. Poverty is aleays going to be with us (not necessarily destitution) but at least in a free market you (or your children )have a better chance of experiencing wealth (and visa versa).
My guess is that in a more resource constrained economy, inequality will oscillate about the current values and I understand there are many social values to be experienced in high measure in poor societies (but I have never been tempted to find out, mainly because I notice that the poor seem to go to great lengths to get to richer societies.)
All these comments are addressed over the next few weeks in Australian capital cities, at Public Talks and seminars given by Richard Heinberg and David Holmgren see holmgren.com.au for schedule….. Powerdown strategies and Re-localisation.
We have 100 hundred years or so for people to realise living in the tropics (say) is the better option for them and move.
Refugees are a political problem there is nor reason why labour should not be as free to move as capital.
If we need free movement of labour to manage the climate change problem this change in outlook will give something for the NGO to get on to.
The immediate danger is high continuing cost solutions like subsidised pipelining water from the tropics just so people can avoid recieivng the signals that life is not the best where they currently live.
RE Biofuels: Read this: Whither Cellulosic Ethanol?
I used to be a big believer in biofuels (especially biodiesel) and I still believe it will have an important role in the short to medium term, but in the long term the only viable option is to electrify our transportation infrastructure.
Growing crops for fuel is an extraordinarily inefficient way to produce energy for transportation. Think of the losses in planting the crops, fertilizing the crops, harvesting the crops, refining the fuel, transporting the fuel, and finally the losses in the internal combustion engine itself. Compare that with (say) a combined-cycle gas turbine (60% efficient), minimal transmission losses (compared with transporting liquid fuels), high-efficiency batteries (~85%) and electric motors (~85%).
The more you look at this stuff the more you become convinced that electrifying transportation (converting the grid to renewables/nuclear) is the best solution.
taust – “We have 100 hundred years or so for people to realise living in the tropics (say) is the better option for them and move.”
Really, are you sure about that?? How sure can you be of this when climate scientists could not answer that question. The danger is that climate change once/if it gets going could happen very rapidly as has happened in the past. The time frame could be decades.
However that does not answer the problem of whether the new area can support an influx of people and whether the people in the new area will allow entry of the refugees.
carbonsink – “The more you look at this stuff the more you become convinced that electrifying transportation (converting the grid to renewables/nuclear) is the best solution.”
Renewables – yes
Nuclear – no – in my opionion.
Once you get the electric cars and plug in hybrids you can use them to buffer renewable power so nuclear is just not needed. Better to avoid all the problems of nuclear entirely.
Ender – I’d love to think renewables can do the job entirely. My point is, if we were forced to choose between nuclear and CCS/geosequestration I’d go nuclear. Why? Its a proven technology, and the amounts of waste produced are tiny. Compare that with the cubic kilometre of CO2 produced every day by coal-fired power stations in Australia.
Taust – Are you concerned about the effects on the biosphere? Plants and animals cannot simply ‘move to the tropics’. Habitats have become isolated by land-clearing, animals can’t move up the mountain if there’s no more mountain, corals can’t build a new reef overnight. I cannot believe that any human being would not be concerned at the tragic loss of biodiversity the would result from rapid climate change.
carbonsink – “I’d love to think renewables can do the job entirely. My point is, if we were forced to choose between nuclear and CCS/geosequestration I’d go nuclear.”
They can if we are prepared to meet them halfway by increasing efficiency and stop wasting so much power. We also may have to accept the notion that some days there will not be much power. We accept that at the moment as no system is 100% reliable. My building has a UPS that testifies to the fact.
The choice you are presenting is a false choice. There are in reality only 2 choices – sustainable or non-sustainable. Nuclear/CCS etc are non-sustainable as at some time in the near future their fuel source will be gone. Sustainable power means that it will last for the life of the sun which by any human standards is forever.
Renewable solutions can include a low level of base load from fossil fuels. Used in this way they should last a lot longer. Nuclear power has too many unsolved problems to even consider.
Ender – my heart agrees with you, my head says … maybe.
It will take some 20 to 50 years for us to re-equip the economy with renewables or whatever so if a trigger pointis going to be reahced it will whatever we do.
.
The Indians and the Chineses are not going to voluntarly accept constraints on their economic activity (we do not why should they). The Chinese have a way of enforcing their will on their population so I might hedge a bit on the Chinese going for economic development.
If the ‘temperate lands are so bad then the tropics will on average give a better than other options life style. Also the tropics were only an example of adaption there are other actions that can be taken eg build seawalls.
However for Australia its a mere accident of history that we did not start by developing the tropics. Its time we did some nationa building in the name of climate change adaption.
Nature is very very adaptable. If there is 4kcal difference in energy levels between two molecure states something will be having a feed. so something will fill in the transitions lands. I understand forsts in the northern hemisphere are expanding noth at some km per degree change in temperature. Think of the low price of wheat when Siberia is the wheat bowl of the world.
If we lost all backboned animals in the world by what fraction would the world’s biodiversity have reduced? Would nature care? Let nature look after nature it has done a good job albeit with periodic mass extinctions.
The opportunities for the scientific study of a mass extinction event as it and the inevitable recovery occur should be enough to make any biological scientist get exited. Climate change is a one in a thousand years chance to improve our scientific understnding of the way the world functions we should not throw this chance away without thinking it through.
taust – ” If we lost all backboned animals in the world by what fraction would the world’s biodiversity have reduced? Would nature care? Let nature look after nature it has done a good job albeit with periodic mass extinctions.
The opportunities for the scientific study of a mass extinction event as it and the inevitable recovery occur should be enough to make any biological scientist get exited. Climate change is a one in a thousand years chance to improve our scientific understnding of the way the world functions we should not throw this chance away without thinking it through. ”
Yeah right. So you are happy to make all the animals extinct just so we can drive SUVs whenever we want and have electronic toys we want.
Sure that is correct – what if one of the animals made extinct is us???
Ender “–What if one of the animals made extinct is us?
We are but part of nature and the majority of species evolved by nature are extinct. Almost certainly extinction will come to H Sap.
The point I as trying to make and failed was that the extinctions through climate change are a very very small part of the biodiversity of the earth. Arguing that it is worth preserving them in my opinion needs to demonstrate how the worth arises.
It can only arise from a human value
.
Lots of people claim to value them when it other peoples money to be spent, but do not care to spend their own money.
taust – “It can only arise from a human value”
So nothing has any value except what is set by humans???????????
Are you serious? You may as well say that the odd murder here and there does not matter because there are plenty of humans and a couple would not be missed.
“The point I as trying to make and failed was that the extinctions through climate change are a very very small part of the biodiversity of the earth. Arguing that it is worth preserving them in my opinion needs to demonstrate how the worth arises.”
Actually we appear to be in the midsts of one of the greatest mass extinctions in the history of the planet and on past evidnece it will probably take millions or tens of millions of years to recover.
But hey that’s obviously a small price to pay to defend your religious faith in the innate goodness of marekts in all situations.
I mean if the facts clash with your prejudices it’s obviously the facts that have to give way.
“There is no God but the market and Adam Smith is his Prophet.”
Enders
please could you explain to me how value arisre without the presence of human value systems?
Ian
I agree that the evidence supports the view that we are in the middle of a mass extintion period. probably caused by the change to H.Sap becoming a dominant life form. This gives a so far unique chance to scientifically study such an event and the recovery. If we do not commence the study right now some data will be lost for ever it is thus urgent to commence the study.
I do not believe that markets have an innate goodness. I do believe that oin a wide range of circumstances they lead to a greater satisfaction of huma wants than other systems lead to. Both free markets and other ‘systems’ have failures. In a wide range of circumstances free market systems lead to less human misery than other systems. I think there is a strong body of evidence to support my belief.
So far I have not seen any need to postulate the existence of a god. From the current day evidence it can be dangerous to choose the wrong brand.
taust – “please could you explain to me how value arisre without the presence of human value systems?”
If I have to explain this to you then obviously you cannot understand the explanation. I suggest that you go to http://www.soul.com and see if there are any for sale there.
This is getting interesting. I said: “I suspect it would be easy to show that, given a number of social groups with unequal access to resources, increasing overall scarcity would exacerbate the inequalities between them.” Taust said: “My guess is that in a more resource constrained economy, inequality will oscillate about the current values…” One of us must be wrong, or at least wrong in certain circumstances.
It seems an obvious question, and I wonder whether anybody has tried to create a model of resource decline as it interacts with inequality? Maybe Taust could find the reference to “some physicists from France” to get the ball rolling. I would have thought that economists also might have done some work on this.
As far as the “human values” issue is concerned, surely the answer is evolutionary, not supernatural. We evolved in a particular world with a varied and self-correcting ecology. That is where we flourish best. To preserve our ecology is to protect ourselves.
Getting back to the topic of Peak Oil;
The rate of oil production eg barrelsa per day is in the short term related to the money invested in production facilities (although obviously reserves are needed to sustain the production rate in the longer term.
Oil is no different from say iron ore or coal both of which are undergoing price rises while production capacity catches up with demand. So price rise does not necessarily indicate a loomong failure of reserves.
There are a number of estimates of total discoverable reserves for oil most of which do indicate that in the relatively short term the rate of discovery of reserves will fall below the rate of use at the then current price. Most assumed more or less $20/bbl oil so there may be some upside to the estimates.
The trouble with Peak Oil predications is that they will be true one day but have been regularly made since mineral oil saved the whales by driving Whale oil from the market by selling at a lower price then Whale oil. (Perhaps the Japanes are taking precaution to give them a renewable source of an oil substitute?)
taust – “The trouble with Peak Oil predications is that they will be true one day but have been regularly made since mineral oil saved the whales by driving Whale oil from the market by selling at a lower price then Whale oil. (Perhaps the Japanes are taking precaution to give them a renewable source of an oil substitute?)”
That is not quite true. M King Hubbard correctly predicted the peak in the lower 48 states of the USA oil production. Oil as a resource is totally unique because of the amount of embodied energy that it has and the fact that it is a room temperature liquid and is quite dense.
Oil ‘substitutes’ have much lower energy returns and/or have huge environmental implications for their exploitation. Our global economy has grown the way it has because of the enormous EROI of fossil fuels. To adapt to lower EROI energy sources will require changes.
Ender,
Predicting it for the US, where the geology is well known and it has been fully explored was a fairly trivial exercise. Predicting it for the whole world is another matter entirely. There are still large areas of the planet that remain unexplored and many fields, particularly those under the control of national (read government) oil companies that have not been explored using modern methods and where the geology is, at best, uncertain.
I am not saying there are some more supergiants out there – I, like you, do not know either way. With several of the countries with realistic prospects having been war zones for substantial periods, who can say?
Either way, there will come a time when oil becomes more expensive. As I have said before we will then transition off it. It will come at a cost, but it will also be gradual as the cheaper fields dry up and we move on to the more expensive. At no stage will we simply wake up one morning and find that all the wells have suddenly run dry.
Andrew – “Predicting it for the US, where the geology is well known and it has been fully explored was a fairly trivial exercise. Predicting it for the whole world is another matter entirely. There are still large areas of the planet that remain unexplored and many fields, particularly those under the control of national (read government) oil companies that have not been explored using modern methods and where the geology is, at best, uncertain.”
Oil is a very special resource. The underlying organic material has to have a certain type of cap and the carbon has to be cooked for a very specific time to form either light sweet or light sour. Cook it a bit too long and you get Heavy sour.
http://en.wikipedia.org/wiki/Petroleum#Biogenic_theory
“Three conditions must be present for oil reservoirs to form: first, a source rock rich in organic material buried deep enough for subterranean heat to cook it into oil; second, a porous and permeable reservoir rock for it to accumulate in; and last a cap rock (seal) that prevents it from escaping to the surface.”
Now while areas exist that are unexplored they are unexplored for a very good reason that there is no possibility of oil there. Wildcat holes are extremely expensive to drill and getting more and more expensive as rigs are getting scarce. Most of the possible areas have been explored. Also the idea that government controlled oil companies do not explore as well as private is also pretty false. They employ the same exploration companies and expertise as any private firm.
Yes we will transition however it will not be and unchanged society. We have to be prepared to make significant changes to adapt to the lower EROI of the alternatives. If we don’t we will just use up the Earths increasingly scarce resources at a greater rate and accelerate climate change.
Andrew, you’re right about Peak Oil not resulting in us “running out” unexpectedly one day, and that capitalism will, on past form, adapt pretty painlessly to gradually rising oil prices.
But I think the far more plausible scenario here is the exhaustion of supplies where the spigot can be turned on off quickly – ie existing developed fields requiring only relatively modest investment in time and money to pump up output. This means that in the short run supply of oil can’t respond very well to rises and falls in spot prices. Given that we know that in the short run demand doesn’t change much in response to prices, this means that prices are likely to vary wildly in response to relatively small factors that change supply or demand (eg a local war, the Chinese start driving cars, etc).
That both demand and supply are much more responsive in the long run (new oil fields, new technology, alternative fuels, etc) means that the average price will rise only slowly, but we can expect a lot more instabilty about that average.
On a separate but related topic, the US consumes nearly a third of the world’s oil. Inelastic supply means that if the silly buggers had enough sense to slap on a decent fuel tax the (pre-tax) price of oil would fall sharply (the post-tax price would only rise modestly). That means that most of the tax will be paid by the sheiks, not by Americans.
JQ, interesting post, with some predictable responses. If three world experts on oil exploration say what we’ve got is what we’ve got and it is not what we think nor can we use like we do and they include an American expert, A Britain and an Iranian, then I guess we need to get serious about what we’ve done. This coming problem has all the hallmarks of a classic multi-factor accident or calamity occuring; crude stock declining, refined stock consumption increasing and climate change from the past century of fossil fuels probably arriving all about the same time.
The issue is not substitution, that is possible but simple economic inputs, land, labour and capital. We have invested extraordinary amounts of capital in a system based on cheap oil, look around you, the very cities and transport systems we depend upon are based on cheap oil. Who is going to bear the cost of replacement and subsitution, simple market price will not suffice because the price signals will be so distortional as to create a fundemental crisis. Where is the capital going to come from to rebuild;motor car based city transportation sytems. just in time production methodologies that rely on rolling stock (trucks) as warehousing, the transportation of goods across the world at speed in aircraft and ships not to mention some of the other issues. We are effectively looking at a rapid depreciation of our whole industrial and social infrastructure over a probable time period of twenty years. The introduction of electricity may solve some transport problems but you can’t use electricity as a feedstock for nitrogenous fertilisers to start with (so there goes the so called green revolution), as food output diminishes because of diminishing returns the fertiliser substitutes will have to be found (sewarage waste is one) but there will be a substantial cost to building and developing transportation and processing systems, not cheap solutions as in Sydney of pumping it into the ocean. Then we add into the mix climate change and every oil substitute simply aggravates or makes much worse the current situation of warming and Co2 emissions. The lead times to design, get approved and build plants to generate electricity (say nuclear) and process coal are significant and the completion times way into the future. Ditto for C02 sequestration (even if viable, yet unproven). Bio fuels are a falacy, every litre of fuel produced from food will place pressure over time on food prices, so the question will become, food to eat or food for fuel. Social upheaval will solve that one not the market.
At even $100 per barrel, half the worlds airlines will go broke, most are already insolvent. The future of air transportation except as a luxury consumption good or state based needed service is pretty well a foregone conclusion.
But no doubt we will be all still arguing about the obvious when it all happens, this brings to mind J Diamonds famous hypothetical, ‘what did Easter Islanders think they were doing when they cut down the last tree?’ what we are doing now, believing something will miraculously substitute itself, forget we need to competely rebuild and restructure the way we live, commute, travel and do business. Once we have lost the means to do so or it has become so prohibitively expensive we will be forced to live with some very brutal market and social adjustments, the market may be efficient but it is remarkably anti-social.
Post-script- have a look at what the Japanese having been doing in terms of electricity generation, moving labour intensive activities dependent on oil O/S and building superb public infrastructure to quickly and cheaply adapt to mass transport systems. And they have already dealt with the folly of their real estate bubble and are coming to grips with their demographics.
“capitalism will, on past form, adapt pretty painlessly to gradually rising oil prices”
Bollocks! Typical economist thinking. Of course we’re not going wake up one morning and find that all the oil is gone. The fundamental problem is that each barrel of oil we produce in the future will cost more in terms of CO2 emitted. The cheap oil is gone. We can’t just stick a hole in the ground and have it gush out like we did in the 1960s. Every barrel of oil we produce in the future will use more energy to produce than it did the year before.
Since capitalism (in its current form) does not place a dollar value on the GHGs we pump into the air, Peak Oil will accelerate climate change, not slow it down. Believe me, I’d like to think otherwise, but I don’t know how you could come to any other conclusion.
Robert Hirsch, the well-known energy analyst has just released a report, “Economic Impacts of Liquid Fuel Mitigation Optionâ€? that considers how the US might meet its liquid fuel needs. He reckons that it can be done with a crash program over 20 years, costing one trillion dollars per year. Last time I looked, the US didn’t have a spare trillion dollars, rather the reverse. And Hirsch doesn’t factor in climate change.
Re the above graphs, the DOE is overly optimistic about anything to do with energy, here is a little snippet from a trusted source in the US Oil Industry about the real situation:
“”Based on EIA crude + condensate numbers through May, world oil production is down by 1.3% since December. However, as I have been predicting, production from the top 10 net oil exporters is down more–3% since December. Since domestic demand in the exporting countries has to be satisfied first, and since domestic consumption in most exporting countries is rising quite rapidly, the effective drop in net exports from these 10 countries is probably more than 5%. In other words, net exports are probably dropping about three to four times faster than world oil production is falling.”
The whole issue of peak oil is that it is a half way point, we passed it several years back according to Campbell et al. Demand is already way ahead of output and the China – India entry into the demand side merely steepens the curve down. Can;t support HC’s optimism about energy gains. The sting in the tail is recoverability v reserves, just because you have 10% left does not mean you can get it. Gas reserves are not that further behind.
Sleepwalking into the future is one way one commentator described it.
“I agree that the evidence supports the view that we are in the middle of a mass extintion period. probably caused by the change to H.Sap becoming a dominant life form. This gives a so far unique chance to scientifically study such an event and the recovery. If we do not commence the study right now some data will be lost for ever it is thus urgent to commence the study.”
Thank you Taust for reminding me why, severla mothns away I walked in disgust from the trolls, right-wing ideologues and racists who dominate the comment section of this blog. (to be clear I don’t think you’re a racist just an ideologue.)
I have this image of you in 1945 “We’ve never been able to observe the extermination of six million peopel before, let’s make sure we gather all the possible data and let’s not interfere with this great scientific opportunity.”
Thanks for ensuring I won’t be wasting any more of my time here.
Here are a couple of posts from the oil drum by a person called westexas. He/she is in the oil industry at quite a high level. They summerise the problem quite neatly:
“”Is it the case, then, that the URR is limited more by today’s technology than yesterday’s price? Put another way, does the oil pumped diminish so quickly as URR is approached that rising price doesn’t provide access to a meaningfully increased amount?”
The Lower 48 and the North Sea both peaked at about 50% of Qt, based on the HL method. The Lower 48 peaked in 1970, the North Sea, in 1999–29 years apart. Note that despite better technology, the North Sea peaked at the same stage of depletion as the Lower 48.
Also, in the Lower 48, we have tried primary, secondary and tertiary recovery techniques, combined with horizontal drilling and 3D seismic, etc.
Can we make money, find new fields and increase the recovery from existing fields in the Lower 48? Yes. Will it help? Yes. Will it make any kind of real difference? No. ”
and
“You can tell that the OPEC guys are lying (if their lips are moving).
When you look at a production rate versus time graph, if you integrate the area under the curve, you get URR, or Deffeyes’ Qt.
The question is, what is the area under the curve, especially when the graph shows primarily rising production with time?
There are a lot of engineering terms–proven, proven undeveloped, probable, possible, etc. The USGS uses some very optimistic methods to get their reserve estimates, and I recall that someone at Saudi Aramco suggested at one time that they were using USGS estimates.
However, I prefer the Hubbert Linearization (HL) method to estimate Qt for large producing regions and for the world.
Using the HL method, if we have a enough production history, we have been able to demonstrate pretty accurate results. I would especially point to the Lower 48 case history, where Khebab took the production data through 1970, to generate a post 1970 predicted production profile. The post-1970 cumulative Lower 48 production was 99% of what the HL model predicted.
We have consumed about 1,000 Gb of crude + condensate, and Deffeyes estimates that the world has about 1,000 Gb of conventional crude + condensate left. IMO, the only areas left that could really change this estimate would be the north and south polar regions.
In any case, as predicted by Deffeyes, world oil production has been falling since December, and as Khebab and I predicted, production by the top oil exporters has been falling faster than world oil production is falling.
I really can’t think of a time when Yergin and/or Lynch have been right.
I can point to multiple examples of the HL method being correct, especially for large producing regions.
Take your pick. ”
The problem is depletion of existing fields. CERA and the IEA do not properly account for depletion and also they include reserve growth that is not necessarily justified. The original post that these comments were posted at is here:
http://www.theoildrum.com/story/2006/8/25/13013/4877#more
Ender says “Here are a couple of posts from the oil drum by a person called westexas. He/she is in the oil industry at quite a high level. ”
Ender knows this to be true..
John, what would be the “correct” economic response to a rise in inflation caused by high oil prices? It seems to me that increasing interest rates would not be sensible because the problem is lack of supply, not too much demand.
Joe
Anyone seen ‘An Inconvenient Truth’ yet?
http://www.springhillvoice.com/reviews.html
I’m also getting chills while reading James Howard Kunstler’s ‘The Long Emergency’
Joe, the problem you allude to is called ‘stagflation’ a governments worst nightmare. The oil price shocks of the seventies did a lot of US industries in one of which was the small to medium aerospace industry (The reinsurers applied the coup de gras a few years later). It gave rise to a lot alternative fuel source work which was promptly forgotten once oil prices resumed a low level.
Megan, Kunstler although a journalist has put together some quite sound facts and placed the hypotheticals into everday language. I checked many of his sources, little hyperbole there.
I really wish people would get their heads around how oil dependent our current economic system is and stop merely thinking of the obvious the car which is the least of our problems. Oil based products drive pharmaceuticals, plastics, engineering, agriculture to mention but a few. There are replacements for some and not for others. Then consider the replacement costs for substitution, and the inexorable decline in oil availablity as the law of diminishing returns kicks in. I understand the Saudi fields are pumping in more seawater to get oil out than they get out oil and the Russian fields are no saviours either, they are pretty clapped too.
I am not posturing a doomsday scenario but the need to get going now and have some serious community discussion about how we are going to manage the inexorable rise in prices and the need to find substitutes is to my mind becoming critical as is climate change. For instance how much of our vaunted export industry will wither and collapse when transport costs rise back to the problem we had a hundred years ago as a nation – ‘The tyranny of distance’. Everything is going to get smaller and more local and we need to plan and work on that now.
Enders
Good post explaining the methodology well and giving an accurate view of the current status.
About the only additional point to be drawn out is that the size of new discoveries needed to provide a continuing say ten years forward reserves is increasing as annual demand increases.
However as the price of oil increases (as it will if the forecast is correct) demand will fall as oil substitutes come to be economic. As is repeatedly demonstrated a number of oil substitues are known so that the transition can be expected to occur without any ‘gaps’.
One interesting development is that for example Dupont and Tate & Lyles (a sugar company originally) have a joint venture using sugar as a feedstock for plastics currently based on petro-chemicals). Dupont must be risk managing the higher oil prices scenario.
All the fuss seems to be about transport fuels but get very much higher prices on petro-chemicals and we would not need forcing to give up plastic bags at the supermarket.