Plateau oil

I’ve spent a fair while talking and thinking about the Peak Oil Hypothesis, and a couple of thoughts have struck me. Looking at the data, graphed below, the big increases in oil prices in the last five years or so seem to have done nothing to call forth additional supply. And for the last couple of years, output has actually declined. In that sense, it looks as if those pundits who claim that oil output has passed its historical maximum may be able claim vindication.

On the other hand, the term “peak” tends to imply a steep ascent, followed by an equally steep descent. Looked at on a time scale of several centuries this will be about right. But, year to year, the pattern is better described as a plateau with a slight downward slope.

There are good reasons for this. Once producers start to anticipate a peak in output, it is in their interests to slow down, rather than to pump out all their oil at prices that are bound to be lower than those prevailing in the future. That means that the price increase is brought forward and demand growth is constrained. So, what might have been a peak is flattened out into a plateau.

Plateaus are not very exciting as landscapes, and the Plateau Oil hypothesis is not very exciting in its implications. Given increasing demand from China and elsewhere, Plateau Oil means that consumption will have to decline somewhat in developed countries. To make this happen, prices will have to stay high, and rise gradually over time (the standard economic model has the rate of price increase equal to the discount rate of oil producers). But it’s quite possible that the biggest jump in market prices is already behind us, and that the next (probably more modest) step increase will come about when fuel taxes are increased to take account of CO2 emissions.

Of course, prediction is risky, especially about the future. It may be that we’ll see some big new fields brought on line or that new sources like tar sands will expand rapidly. Still, my best bet for the future is that global oil output will never rise much above its current level, and that a definite decline will be evident within a decade or so.

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39 thoughts on “Plateau oil

  1. Hmmm, on second thoughts and some quick googling, I might have to do some more research on that idea.
    http://www.solahart.com/default.asp?V_DOC_ID=837
    It would seem the ‘icing’ problem may be highest at night on off peak tariff when the outside temperture is coldest in winter, precisely when you need hot water most. It’s then the less efficient booster element would come into play the most. Might be OK still in Adelaide’s mediterranean climate.

  2. Observa, you need to subtract the captial gain on your house from the number you quoted. I’ll bet that in some places (like Melbourne) things like decent looking water tanks would add more to the value of a property than they cost (Some types of heating and cooling certainly do), although I’d be interested to know about solar panels.

  3. observa – I am glad that you are switching. You may want to consider the evacuated tube type of solar hot water. They are much more efficient than the flat plate type and work in colder conditions better.

    http://megasun.net.au/apricus/index.html
    http://www.endless-solar.com.au/index.htm

    These people have systems you can retrofit to your existing hot water system so you do not have to ditch it if it is OK. I am going to fit an 11 tube system to my gas storage hot water system.

  4. Yeah thanks for the links Ender. I was aware of the glass tube technology as a business acquaintance was engaged in setting up China imports of such units using German technology. Must look him up. Apparently they were units that didn’t even need direct sunlight but use other reflected rays from the sun’s spectrum. Very necessary in high rise China, but maybe not needed much here.

    An important consideration for Adelaideans with hard water is the life of the cylinder/storage vessel, which the soft water states can more readily ignore. Consequently the dearer the system the the less attractive the investment return, cyl/storage vessel life being equal. I installed the current 401 litre Rheem Optima, mains pressure storage heater about 10 years ago. The ‘Optima’ lasts longer(10 year cyl warranty instead of 5 years) largely due to a much thicker magnesium protective anode installed. Also I check it annually for deterioration, unlike most owners who wouldn’t even know about the anodes and even if they did, paying a plumber to check it would not be economic. Consequently my Hot water systems can last up to 15 years, when many replace them at 7-8 year intervals. Dearer solar systems need to match this useful life under Adelaide water conditions and I’m not sure they can, but I’ll do my homework on them. Reminds me it’s time to check the anode again.

  5. observa:

    I agree with you entirely about the ‘one percenters’. I don’t believe that climate change or oil depletion will be easy problems to solve. I don’t believe (as ProfQ does) that the total cost of fixing climate change will be a few months of lost income spead over 40 years. Equally, I don’t believe that denying there’s a problem, or that its a problem too expensive to fix, is a credible position to hold.

    I’m glad you’re considering switching to solar. I replaced my electric storage hot water system with solar a few months ago. We’ve only needed the booster once or twice this winter, and we don’t have due north orientation. Our electricity usage has dropped around 10 kWh/day since we installed it.

  6. You’re first para sums up my view too carbonsink. JQ has some rose coloured glasses about costs and who will bear them IMO. I think a big worry is putting many peoples scarce dinner in our tanks, a concern expressed here
    http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/07/22/nbook122.xml

    I’ll do just fine in JQ’s brave green world. As I pointed out in a previous post, if the SA Govt introduce their mooted mandatory buyback of solar energy by the utilities on a 2 for 1 basis, then I’ll have a $13990 net cost (after $8000 Fed rebate), 32 panel thin film silicon solar panel system on the garage roof in a flash, earning me 9.6% tax free return on my investment. I’m about as keen on the cost transfer to struggletown of that as I am over the cost to the third world of biofuels, but if them’s the rules, them’s the rules. I’ll be no economic martyr.

  7. observa:

    Apart from the debunking of biofuels as a solution to climate change, Booker’s piece in the UK Telegraph is complete and utter nonsense.

    Yet another example of how sensible discussion of climate change policy is almost impossible at the moment. Opinions range from Booker’s attempt to deny, delay and debunk everything, to doomsayers predicting Greenland will melt next week, to ‘one percenters’ who tell us it will cost us nothing more than a cup of coffee a week.

  8. Carbonsink, it’s easy to show an absolute upper bound of 10 per cent, using the solar technologies discussed here as backstops. But no serious economist who’s looked at the question thinks the cost will be anything like as high as this. Everyone from Stern to ABARE is in the range 1-3 per cent for plausible scenarios

    If you or observa want to say that what I’ve posted on this is comparable to the climate denialism you mention, you’d better offer more than the bluster and assertion I’ve seen so far.

  9. I read an interesting paper recently – AR Brandt, “Testing Hubbert”, Energy Policy 35 (2007) 3074-3088. This paper looks at oil production data from 139 oil producing regions (at a range of scales). The paper suggests that asymmetric models fit the data better that symmetric models like the Hubbert curve. On average, oil production would increase at a higher rate than it would decrease after the peak in production. I suspect this might lead to more climate change that would be predicted by a Hubbert curve (depending on how “pointy” the peak in production is).

  10. “Apart from the debunking of biofuels as a solution to climate change, Booker’s piece in the UK Telegraph is complete and utter nonsense.”

    It was the legislation and figures on biofuels that caught my eye. The rest was a general whinge.

  11. ProfQ:

    At no point did I say your position is comprable or equivalent to climate change denialism. IMO you have an overly optimistic view of the costs of dealing with climate change, and you seem to have more faith than I do in our political class taking the problem seriously.

    For example, our dear leader read the same ABARE reports as you did and concluded that the costs of dealing with climate change are downright catastrophic, requiring (among other things) the removal of every car and truck on the road, a 10% fall in GDP, a 20% fall in real wages and a “staggering rise in electricity and gas prices”.

    Now I know Howard is up to his usual fear-mongering, but OTOH I don’t believe we can overhaul our entire energy infrastructure in a few decades for the cost of a cup of coffee in 2050. The truth lies somewhere in between. At the moment we are doing next to nothing to deal with climate change. Regardless of who is elected later this year we won’t see emissions trading until 2010 at the earliest. No doubt the initial emissions allocations will be extremely generous, and we won’t see emissions from electricity generation stabilise until 2015-2020. And of course, neither party will do anything about fuel taxes and emissions from the transportation sector. The fuel excise will remain frozen, the AUD will remain strong, and Australians will continue to be protected from rising oil prices.

    Raising energy prices, and particularly petrol prices, will not be politically acceptable in Australia for the foreseeable future. Our politicians will conclude that the Australian lifestyle is not negotiable, and we will continue hurtling towards the cliff until things get really desperate and draconian measures are required.

    Ok, you might say this is an overly pessimistic view, but can you honestly tell me there’s a politician in the land who has the courage to raise fuel taxes?

  12. The chart presented does not seem to offer much support to the argument presented. Between mid 2000 and late 2002 the chart indicates a decline in output steeper than any current trend and that decline subsequently reversed. The current plateau would seem consistent with just about any conclusion that you care to draw (ie it will soon rise, it will soon decline, it may stay flat). The current plateau is hardly out of character across the timeframe offered by the chart and the overall trend of the chart is clearly upward so if this was the only point of reference the best guess would be for a further increase in output. The AGW proponents better hope so because oil is a rather friendly fuel compared with coal.

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