Sunday, July 21, 2013

Peak Oil Has Arrived

Let's talk about Peak Oil.

The impending change of status of the venerable site The Oil Drum has caused a bit of soul-searching on the Web. Fortunately, many of the best writers on TOD have gone off and formed their own blogs like Nicole Foss, Stuart Staniford, Ugo Bardi, Gail Tverberg and others, so we won't be devoid of content or analysis. And Energy Bulletin had broadened its scope as However, this has not stopped some people from claiming that Peak Oil is dead or disproven, or something of that sort. This is usually done by misunderstanding what Peak Oil actually meant, or by constructing some sort of straw man.

For what they miss is that the Peak Oil scenario spun by it's proponents beginning in the Nineties is happening right on schedule. And as it moves from theory from reality, we can see which camps were correct. And the answer, not surprisingly, is both and neither.

To some extent the "conventional" economic story played out - as a resource became scarcer, prices rose giving incentives to the market to "innovate," making the resource more plentiful by finding substitutes, promoting use efficiency, developing new drilling technologies, bringing previously unrecoverable sources to market, and stimulating new exploration, just as economic theory dictates.

But this story has far from a happy ending. We are not substituting fossil fuels with superior substitutes. We can't, because no energy source is as economical and as energy dense as hydrocarbons to exploit, as physicists have pointed out. Instead, we're going after inferior sources of hydrocarbons - "tight" oil, tar sands, shale oil, liquid condensates, arctic drilling, methane clathrates, artificial algae biofuels, used french-fry grease, etc. Fracked natural gas (methane) and low-grade coal are being used more and more as substitutes in place of liquid fuels.

All of the above are not inconsistent with the Peak Oil scenario of course, they are part and parcel of it. Peak Oil pointed out that we went after the easiest and cheapest to exploit sources of fossil fuels first, and that future sources would be inferior and harder to access. Check. The United States is set to become Saudi Arabia only because oil is so expensive that we pulling out all the stops and going after the dregs everywhere on the North American continent. We are doing this not because oil is cheap, but because it is dear - which is what Peak Oil theory predicted all along. Oil is expensive and needs to be for this scenario to pan out. That this would have deleterious effects on the global economy was another prediction of Peak Oil that was essentially correct. It was never about running out of oil, but about running out of cheap oil.

These are not triumphs, they are desperate measures. Rather than testaments to human ingenuity, they are testaments to the Vicious Circle Principle. We have become totally wedded to the industrial way of life and cannot live without it. Therefore, we are forced to innovate - and become dependant upon those innovations, putting us in an even more precarious position than before. Meanwhile, we are merely holding off the inevitable. Peak Oil is not moving us toward superior sources of energy; it is a desperate rearguard action on the way to decline. It reminds me of how the Mesopotamians planted salt-tolerant barley in place of wheat as irrigation and a high water table began the salinization of their fields. Obviously, this only delayed the inevitable, as the dessicated and abandoned mud brick ruins of Iraq attest.

And given the extreme wanton wastefulness of the industrial regime under capitalism (where everything is designed for maximum profitability to a tiny economic elite as opposed to efficiency), and the system's need for exponential growth (due to usury and Ponzi dynamics), even this scenario runs into the wall on a long enough timeline. Even one percent growth causes doubling every 70 years.

So high prices; low flow rates; low net energy; huge externalities including earthquakes, flammable drinking water, and climate change; environmental destruction; extensive resource needs (especially water); and huge upfront capital investment costs all mean that despite proclamations of Peak Oil being "over" or a "myth," it is, in fact, occurring more or less as some of the more sober experts claimed it would. Can something be disproven by actually occurring?

I think what it does end up disproving are some of the hard-core "doomers." We are not headed toward James Howard Kunstler's "World Made by Hand," anytime soon. We will not be living in isolated small towns spending our days ploughing fields behind a draft horse and our evenings playing the fiddle by candlelight within the next fifty years. We will not all be living like Amish with Internet, unless, of course, we choose to be Amish. In other words, put away your "collapse porn."

But neither is business as usual an option. I've always felt that the inherent problems with our economy have less to do with oil and more to do with the inherent contradictions and instabilities within capitalism, such as overproduction, extreme inequality, mass unemployment caused by automation and outsourcing, government corruption, diminishing returns to scientific discovery and innovation, exponential growth of debt, and the like. After all, the Great Depression occurred on the upswing of crude oil production. And the unravelling of the Soviet Union was due to a lot more than the temporary low prices for crude oil due to the 1980's oil glut. They didn't collapse because of a lack of oil - Russia's a major exporter even today. The same goes for Argentina, Greece, and a number of other locations.

To some extent, doomerism was always the easy way out. You did not have to reform the system because it would collapse of its own accord. In its place would spontaneously arise the small-scale localized economies free of the Wal-Mart race-to-the-bottom and fast-food blandness we have become accustomed to. Current elites would be impoverished, bloated government would shrink to a manageable size, and manufacturing would move back to the United States reactivating and reanimating the heartland. The global economy where you are nothing but a "consumer" purchasing products made in robotized factories far away in a warehouse staffed by demoralized minimum wage workers would be no longer viable, and self-sufficient homesteads and local small businesses would once again be the norm.

But, several years into the Peak Oil scenario, note that none of this is happening. Instead, the poor are getting poorer, the rich are getting richer, and the elites are more isolated than ever. Big banks are still above the law, speculation is rife, small businesses are failing left and right, and all our stuff is still imported from the other side of the world. The Rust Belt is still losing people, and the Sun Belt is still gaining them (although driving is down). Our farms are still supersized and centered on corn and soybean yields. We're fracking the hell out of everything, genetically engineering crops for global climate change, engaging in economic "austerity," declaring municipal bankruptcies, raising taxes and fees (except on the wealthy), engaging in money-manipulation schemes, and squeezing average workers harder and harder to keep up profit levels. All levels of society are still clamoring for "growth," while the media is being used by elites to justify "the new normal," to a demoralized and proletarianized former middle class.

No, industrial capitalism hasn't ground to a sudden halt the way people like James Howard Kunstler, Matt Savinar and Michael Ruppert claimed. But it's limping along on life support, all while maintaining the fiction that the centralized, socialized, highly manipulated system of crony capitalism where gains are privatized but losses are socialized is a "free market."

So, no, Peak Oil is not giving us the world we want, and it's not likely to. It's up to us to do that.

To the articles:

Peak Oil is Dead! Long live Peak Oil! Noah Smith. And economist who read the Oil Drum, what a relief! Excellent summary:
The thesis of Peak Oil is simple: Global oil production will soon peak and begin to decline. But there were two possible stories that the Peak Oilers told about how this would happen:

"Good Peak Oil": In this case, we find something that's better than oil, and switch to that, just like we once transitioned away from whale oil. In this case, oil prices and production would both fall.

"Bad Peak Oil": In this case, we don't find something better than oil, and as oil becomes more scarce, the price would go up, while oil production and overall economic activity both contracted.

What we got was neither of these. Or more accurately, we got a little bit of both, coupled with something else that doesn't fit with either story... Basically, what happened is this: Scarcity attacked humanity, and Human Ingenuity battled back. Through heroic efforts, doomsday was averted. But Ingenuity did not win a smashing victory, as it did when we switched from wood to coal, or from whale oil to oil. Instead, humanity was forced into a fighting retreat, with Ingenuity executing a brilliant rear-guard action and forcing Scarcity to call off its pursuit...for now. But humanity has lost ground.

And Scarcity may not wait very long before launching another attack. Future increases in shale oil production (including tight oil and oil shale) is likely to be a lot more expensive than the low-hanging fruit we have picked thus far. Coupled with continued rises in developing-country oil demand and continued decline in conventional oil fields, this could cause another rise in oil prices. That will bring back the "Peak Oil" meme, which only seems to interest most people as an investment story. But sadly, The Oil Drum will not be around to chronicle the return of Peak Oil.

In the meantime, whatever you think of the predictive prowess of the Peak Oilers, the policy implications of the permanent transition from cheap oil to expensive oil are the same. Humanity is running out of high-quality, fungible, energy dense transportation fuel, and there is no substitute on the horizon. Creating a substitute - be it biofuels, batteries charged by cheap solar, or whatever - is going to take a lot of research, which is going to cost a lot of money. And realistically, the only entity that will put up that kind of money is the government.
Note the chart begins after the 1970 domestic peak.
This article from the BBC, The receding threat from 'peak oil' attempts to discredit Peak Oil but ends up indirectly proving it:
This follows a pattern of technical innovations to find new ways of extracting oil from existing fields that might otherwise be depleted.

In central California, where the first oil wells began to flow as far back as the 1890s, the oil originally emerged from the ground under its own pressure. In the 1940s, operators had to introduce the technique of injecting steam into the wells to free up the oil and flush it to the surface, a method still in use today. More recently, horizontal drilling - in which drills reach more than a mile down and then along - has reached reserves otherwise considered closed.

According to one independent oil producer, Fred Holmes of Holmes Western, the key factor is a high price for oil, making it worthwhile to continue exploiting existing fields and explore new ones. "There's still plenty of oil - we just haven't got all of it out of the ground yet. There's not a real danger of there being no fossil fuel… the oil is still valuable and it's not easy to get," he told BBC News. "There's enough oil in this country for another 100 years with our present technology and there's more around the world to be found yet."
Forbes magazine, as expected, attempts to assure us that Peak Oil is "dead":
To wit, the core of the Peak Oil hypothesis could be summed up as: sometime in the not so distant future we need to put some effort into finding new oil extraction techniques. This might be easy in which case there will be plenty more cheap oil. Or, it might be hard, in which case either we can switch to something else or, as with most every other good on earth, we will want to devote some fraction of our time and energy to continually pushing the technological frontier. And, while this is superficially true, it leads you to no deep conclusion and provides no serious insight into the future of humanity or the global economy.
No, the core of the Peak Oil hypothesis is that modern industrial civilization has for its lifeblood an energy source that is finite and that can only be used once and for which there are no substitutes, and we are utterly dependent upon it. Furthermore, the cheapest and easiest to access sources are used first, meaning it will get more and more expensive over time, and will require ever more resources and energy to extract it, leading to less net energy to power said civilization, leading to economic contraction and declining living standards. Also, fossil fuel use causes permanent damage to the biosphere, causing severe consequences to civilization from things like pollution and climate change. Get it right, will you?

And at Slate, Matt Yglesias looks at the data and concludes that:
Now with some subsequent years of data we can see that despite the slow growth in developed countries prices have very certainly not returned to the halcyon days of the Reagan-Clinton years. We can see that the Iraq/Kuwait price spike actually looks like a bit of a joke. We can see the impact of the unconventional oil, which has created this anomalous gap between the WTI price and the Brent price. It's a big gap. This is nothing to sneer at. Not only is it causing an economic boom in North Dakota and select portions of Texas, but it plausibly explains some of why America's overall economic performance has been so much better than Europe's. But even so, America's oil boom hasn't pushed U.S. oil prices back down to mid-aughts levels and it certainly hasn't pushed U.S. oil prices back down to 1990s levels. The good old days of genuinely abundant liquid fuel really do appear to be behind us.
Which is what the more rational Peak Oil proponents were claiming all along.

Again, I would argue that seeing Peak Oil discussions from mainstream economics bloggers and in publications like Forbes and the BBC proves that it is, in fact, occurring. It's part of the dialogue now. Face it, we're getting worried, or we wouldn't be talking about it at all.


  1. 84 upvotes on reddit so far, but no comments

  2. Based on the fact that it hasn't happened yet, hardcore doomers have been proven incorrect? Peak oil or not, how can the United States stay on this financial course. We still buy a majority of the liquid fuels that we burn. Without finance how will we maintain access to oil?

    Have we now established that the United States will have economic access to oil for "the next 50 years," the length of time you suggest a collapse event has been pushed back?

    1. You can't prove a negative. I can't prove there won't be a collapse any more than people could prove there weren't any weapons in Iraq. It's simply a matter of "what is the most likely circumstance?"

  3. Also, do you include Orlov among those who have been disproven?

    1. I'm not sure what Orlov's predicting. It seems a lot of people are predicting a sudden, massive financial catastrophe. It's happened before - see the Great Depression. But will a Soviet-style collapse happen here? I'm not so sure, maybe just declining standards of living in perpetuity. What would we replace the current system with anyway?