IS PEAK OIL REAL?

In this September 2010 study a German military think tank analyzes how “peak oil” could impact the world in the coming years.  They discuss the importance of oil to the global economy, its connection to global conflicts and why the world is almost certainly running out of this important resource:

It is a fact, however, that oil is finite and that there is a peak oil. Since this study is mainly focused on understanding cause-effect relations following such a peak oil situation, it is not necessary to specify a precise point in time. Some institutions claim that peak oil will occur as early as around 2010. Depending on the development of globally relevant factors, we cannot rule out that peak oil could have serious security policy implications within the review period of the 30-year investigation perspective chosen for the SFT series. The dimension of the potential effects in conjunction with the above-mentioned ambiguity regarding the existing data on the future availability of oil therefore underpins the necessity to look in more detail at
the potential security policy implications for Germany.

Apart from the above-mentioned uncertainty factors regarding exact peak oil occurrence, it is foreseeable that when global peak oil is actually reached – and if transformation towards post-fossil societies has not been extensive enough or has occurred too late – it will no longer be possible from a certain point to cover the global demand for oil. Against this background and regarding the long periods of time needed for adjustments in the energy sector aiming at a far-reaching energy transition, it is today’s necessity (1) to thoroughly analyse our extent of oil dependence, (2) to identify – based on this information and in time- potential risks , and (3) to discuss alternatives for using oil.

…The main objective of the study is to raise awareness about the systemic importance of oil and, in turn, the derivable significance to security policy if peak oil is exceeded. The findings and results are expressly not meant to imply that resources will necessarily have to be secured with military assets. Rather, the study is to be understood as an appeal to think things through at an early stage and to develop both preventive and responsive courses of action. It does not aim at anticipating political decisions.

#1 What Does Peak Oil Mean?
“Peak oil” denominates the maximum oil production. It is the point in time when the production rate of a single oil field or of an entire producing region has reached its absolute maximum. This is usually the case when approximately 50% of the recoverable oil has been extracted. In order to predict global peak oil, it is necessary amongst other things to estimate how much recoverable oil, including newly discovered deposits, is available and how much, over time, can be produced per day. Using his own calculations as a basis, the US geoscientist Marion King Hubbert claimed as far back as the 1950s that the total production of several oil sources would form a curve resembling the shape of a bell – the Hubbert curve.

Source: www.theoildrum.com

The grey area in Figure 8 shows the world-wide production of oil. The diagram shows a mean and a median prediction of 15 peak oil studies, all of which forecast that the peak will be reached before 2020. The variability of these predictions is shown by the yellow area. The magenta-coloured area represents a population-based model of the International Energy Agency (IEA), which assumes that oil production will grow in relation to the population. Peak oil critics, in particularly the IEA itself, assume that the grey curve will remain congruent with the magenta-coloured population-based predictions and that there will therefore be no unanticipated shortages. Peak oil advocates believe that the grey area will develop within the yellow zone.

The general explanation for the existence of peak oil is the fact that fossil resources are finite. Most of the oil produced today comes from conventional oil reserves.210 Conventional oil, however, is only available to a limited extent, because it is a finite natural resource. There is therefore no dispute that there will be a “depletion point” – at least when it comes to conventional oil. Nobody knows for certain how peak oil will take course, however. A possible initial scenario, for example, would be a prolonged plateau of oil production, a stagnant global production rate. It is suspected that increasing oil prices could result in more investments being made in recovery systems, new recovery techniques, oil substitutes and energy-saving technologies. Technical progress also has its limits, however, for example if there is not enough time available for research.”

This is something I certainly don’t discuss enough here on the site and as a macro theorist that is inexcusable.  Oil’s importance to the global economy has come to the forefront in the last few years and studies such as this one help to shed light on the potential problems that could result.  I highly recommend reading the entire study here.

* Thanks to Tom Hickey for posting this originally.

 

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. Great reading. The prediction the we may reach peak oil before 2020 can be debatable though given that demand may continue to slow if we stay in this balance sheet recession for longer than expected, China slows and Europe doesn´t fix its sovereign debt crisis properly and in time. The amplitude of this slow down may be underestimated and we can certainly not count on politicians to always do the right thing.

  2. Peak oil also implies a future dilemma between GDP/profit growth or standard of living improvement. I expect both to decline (for all except the most wealthy) failing a dramatic innovation in energy production.

  3. Also interesting how Austrians in particular fail to discuss the role of oil in their “business cycle”. Perhaps, they are still in denial that the Fed under a fiat system controls the interest rate and not the free market.

    At any rate, in a Austrian vernacular, Ben Bernanke an Co. great moderation interest rate interference has now “broken” the interest rate lever to produce economic stimulation. And instead created a massive housing bubble and balance sheet recession. As a result, today market forces (price of commodities) regulate the business cycle which remain largely out of the control of the Fed. As such, the price of oil dictates economic growth and contraction much like interest rates at one time were used by the Fed previously.

    However, where previously interest rates produced consumer credit expansion in a a four year credit driven business cycle between boom and bust, before natural de-leveraging occurs (The great moderation experiment did not allow the 4 year boom/bust deflate). Now the the inflation/deflation of commodities and oil seems to be drive a much shorter commodity driven business cycle of perhaps 18 to 24 months between boom/bust.

  4. Coming from the energy technology field, our research indicates that peak oil is a ways off. However, “easy oil” is nearly exhausted. With oil exploration and harvesting costs escalating, other technologies including our technology of coal liquefaction become politically favorable. Oil costs will continue to climb as cheap oil is behind us.

    Scarcity will continue to be affected by technology

  5. http://en.wikipedia.org/wiki/Peak_oil

    Is peak oil real? Yes. No doubt we’re going to run of oil sometime in the future.

    That said, the estimates used to calculate ‘conventional reserves’ is based on what is possible to extract under current technology.Technology improves over time, allowing us to extract more oil. This is why the former estimates of peak oil were wrong: they were based on the technology of the time, not future extraction technologies.

    Moreover, some oil sources that are unprofitable at one price, become profitable when oil reaches higher prices. Case in point the Oil sands. I’m willing to bet that if oil reaches 200 USD a barrel we’ll see more unconventional sources of oil popping up and then becoming part of the ‘conventional’ reserves, delaying peak oil. So I believe peak oil will come much later than what experts think right now.

    I’m also willing to bet that while oil prices might reach some silly price like 500 USD a barrel in the future, the high price will scare the hell out of everyone and force people to become more fuel efficient or switch to other source of energies pronto. It’s not that there aren’t technologies that can offer us energy at in a massive scale. There are. The problem is that oil is so cheap compared to them that there’s no much incentive to switch to other energy sources. Right now the only way that renewable energies can compete with oil is with subsidies. Should oil hit 500 USD a barrel, you’ll everyone switching to renewable energies Godspeed.

    Even better, all the people worrying about peak oil is scaring the hell out of people to take action NOW, so *when* peak oil hits, the transition to a ‘green’ economy might be a much smoother than expected.

    Btw, this is coming from the mouth of some guy with a horrible trading record.

  6. The problem with the Oil Sands, aside from the obvious environmental ones, are that with current technology the peak of output (production rate) from the sands will be sometime this decade due to the water and natural gas constraints required to produce them.

    An aside: Penn State had a promising solution to some of these issues but it is essentially mothballed because it is too big for industry to take on.
    http://www.matse.psu.edu/news/ionicliquids

  7. Where there is a will there is a way. Peak oil is a floating concept. It has been around for nearly 100 years. Every crew thinks, this time, this time it has arrived. It will never arrive. Long before “peak oil” brings its wrath we will be on another fuel source. Ingenuity rules–never, ever forget that. Higher prices is usually the trigger. When ingenuity ends humanity will be in a bear market. Until then don’t sweat the small stuff.

  8. I would think that if we had any sense we would sink a bunch of money into thorium MSR before China completes their research and starts building them. A thousand years worth of clean, safe energy. Oh wait, I forgot, we’re morons (I give you the fact the MMT is not the mainstream school of thought despite all evidence that it is, in fact, reality).

  9. Global oil production plateaued around 2005. It is anybody’s guess when we start the decline, but it is certainly within 10 years. Global GDP growth is strictly limited by energy production right now. This means global GDP will never grow again until the fossil fuel age is over and new sources have replaced fossil fuels – at least 100 years from now. The transition period is likely to be very ugly if new technology does not keep up with demand for energy. Nuclear does not work because its EROEI is too low. There is nothing else known to current science that can work. Solar requires too much collector area and its EROEI is too low. We are likely to have a hundred years or so of mad-max type anarchy after global oil supplies decline with nothing to replace it. Global populations will have to be culled by world wars to a sustainable level (about 1 billion globally) before new technology kicks in in about 100-200 years time. We are about to see the greatest bloodletting the world has ever seen over the next century. It will be like right out of the Book of Revelation.

  10. If my innovation initiative were in place I could virtually guarantee a logical energy initiative over the next 20 years….But we think we’re bankrupt so why bother with stuff like that?

  11. Ingenuity cannot overcome fundamental scientific obstacles. The EROEI (Energy Return On Energy Invested) is way too low for both nuclear and solar. It simply takes too much fuel consumption to make and transport the concrete and steel for a nuclear plant or the silicon and glass of a solar collector. Our only hope will be a way to totally convert matter into mc^2 worth of energy (a Time Loop Electrical Generator), and the science to do this does not exist right now. Unless a way is found to transport charged particles backward in time so that their entire mass can be converted to electricity, humanity is destined to see the greatest population cull and global bloodletting ever. >80% of the people alive today will have to be killed. It will be like right out of Mad Max or The Book of Revelation.

  12. Cullen,

    I’ve spent years studying Peak Oil. It is here and supply is already lagging global demand.

    Worldwide oil supply may peak within 2-3 years and then, it’ll decline FOREVER.

    Good luck, everyone will need it!

    Regards
    Paul

  13. I think we all look at the world through our own colored lens, and we all read what we like to read that fit our belief. The good thing about this discussion is that we can see in next a couple years.

    Let me put a scenario out here: if SPX is 500, and oil price is 40 next July, are we still running out oil? Will we still discuss this?

  14. Excellent article. Well thought out and to the point. Having worked in the oil patch as a petroleum geologist for over 40 years I know first hand the difficulties in adding new reserves at low costs. In the past two decades it has become more and more expensive to find and produce existing oil in any reservoir. Although higher oil prices have encouraged various large and small companies to go after black gold in conventional and non-conventional reservoirs. We are in effect near the bottom of the barrel. My own estimate is that we are nearer to a tipping point; maybe in 6 or 7 years at the outside.

  15. Hi, Cullen,
    Thank you for picking up on the Bundeswehr study, which should have been front-page news (but wasn’t and probably never will be) and deserves to be circulated. Your article helps in that regard.
    One small correction: the official version was released in November (not September) of last year.

    As for additional information, readers may not be aware that the Bundeswehr study is the most recent and most thorough of many military analyses of peak oil, almost all of which have been conducted during the past six years:
    http://www.energybulletin.net/stories/2010-09-28/review-putting-bundeswehr-report-context

    The central message here is that while elected officials and civilian agencies seem to ignore and downplay peak oil, military analysts in several countries are expressing increasing concern.
    Personally, I trust the view of the military analysts: it is more long-term, more realistic and is appropriately cautionary.

  16. Investment in oil and oil related companies would seem to be the order of the day. Reducing the world population by 6+ billion or more over 100 years seems very drastic. I guess peak oil and peak energy are two very different things. Energy sources are abundant. The entire planet is one colossal energy source. However, I don’t think we can rely on a capitalist corporations or their ideology to solve this one. It is more of a global initiative that is required. Oh dear we can only think and act as independent, fight for your own survival, countries right now. So I hypothesize that it is not peak oil that is the real problem, it is slowness of mankind’s thinking to run at anywhere near the same speed as world growth and technology that is the real problem facing us in the not distant future. What do you think will win? Mankind’s intelligence or mankind’s savagery to fight for what he/she needs?

  17. When people think of peak oil they imagine scenes from Mad Max, while that is a probable representation of what it’s going to look like 50 years down the line, in the short term what will push us over the edge will be the end of cheap oil, that in essence is what peak oil means, not the end of oil itself. When countries start to realize that oil will not be available at 200 or even 300$, expect a mad scramble to secure supplies. Panic and greed is what will finish us off not oil.

  18. Even organizations like EIA/IEA are accepting that conventional oil has already peaked. Most of the large fields are already in depletion (USA, Alaska, North Sea, Mexico) or on a plateau (Russia and the largest fields of the planet, Ghawar and Burgan are on a plateau or slow decline). We are basing our future production on deep water fields (Golf of Mexico, Brazilian per-salt fields) and unconventional oil like the tar sands in Canada. Tar sands are more of a mining operation with vast needs for water and NG. They will probably keep producing for many years to come but production increase will be extremely slow while the rest of the world is declining. Deep water fields show some potential but they are expensive and when they start depleting they are just abandoned.

    Extended Oil Recovery is NOT a new technology. We have been using horizontal wells, water flooding, steam, chemical for many years now in currently producing fields. These technologies do not substantially increase the oil that can be extracted, they just extend plateau for a few years and then increase depletion rates dramatically (Cantarell is a nice example of that).

    The world will not only need the levels of current production, it will need even more due to China and India. The good thing is that OECD has peaked on it’s oil consumption and will probably slowly decline due to increased vehicle efficiency. The problem is that peak oil is happening more or less right now. High oil prices place a limit on growth. Too high and the economy falls into recession, too low and various expensive oil projects are abandoned. Volatility is a real killer.

    The Oil Megaprojects page (http://en.wikipedia.org/wiki/Oil_megaprojects) is nice to see that future oil production increases will not be enough to even cover production decline (around 4mbpd). The Oil Drum (http://www.theoildrum.com/) is the master site on Peak Oil. Here’s two articles on the hard limits on growth (http://www.theoildrum.com/node/8155 http://www.theoildrum.com/node/8185).

  19. Forgot to mention. One very important factor is the Export Land Model. It doesn’t only matter how much you are producing but how much you can export. Most of the oil exporting countries show very large growth rates in their population and oil consumption figures. Even a production plateau is transformed into an oil export decline. That’s what really matters for the OECD/China/India and for the global oil prices.

    http://mazamascience.com/OilExport/

    A classic example is Egypt. Isn’t it interesting how it became an oil importer at the same time that the Egyptian revolution erupted?

  20. While peak oil will no doubt occur in my lifetime; long term, there are many ways to prolong the carbon economy. There will be 1) much improved petroleum recovery techniques, 2) utilization of deep water and arctic petroleum deposits, 3) use of nuclear power as a replacement for electrical power generated from carbon, 4) greater use of coal, coal gasification and oil shale.

    What this means, however, is that energy costs must rise over the long term and must rise significantly. What will be the effect on the world economy if a barrel equivalent of oil costs $200?

    Also, these energy sources of the future cannot replace significant amounts of petroleum without years of development and huge investments. Will these energy sources keep ahead of future decreases in oil production? Probably not.

  21. Peak oil theory has never been about running out of oil. It is about declining rates of production which, when combined with ever growing demand will produce dramatic price increases over the longer term. According to IEA stats, global oil production peaked in 2006. Certainly a dramatic global slowdown could see oil prices back to a 30 or 40 handle, but that does not change the fact that daily production has been in decline for five years now.
    Think about how vital oil is, then think about the idea that we pay more for a gallon of diet coke than we do for a gallon of gasoline.

  22. I will be the Devils advocate on this one.
    I am starting to doubt the Peak oil theory.
    I think that Abiogenic petroleum has some merits that need to be re-looked at and I think that the Securitization of og the Oil markets via Wall Street has seriously distorted price/demand theory.

    Just look at how the Natural Gas bubble has been popped for a while now.

  23. STPEPPER’s comments are spot on (excuse the pun).

    Cullen… Mountaineer’ reference to the BP annual study is very good:

    http://www.bp.com/sectionbodycopy.do?categoryId=7500&contentId=7068481

    For data on Peak Oil it all derives from Hubbert’s model:

    http://en.wikipedia.org/wiki/Hubbert_peak_theory

    Note that Peak Oil was based upon Ore grade and not off-shore drilling or unconventional oil. Hence, it is not useful for determining actual oil depletion and market prices.

    For data on the viability and adoption of renewables:

    http://www.ren21.net/REN21Activities/Publications/GlobalStatusReport/GSR2010/tabid/5824/Default.aspx

    The main problem with identifying the arrival date of peak oil is that it must assume static technology. Innovation and technology continue to advance and hence “reframe” previous thought.

    I’m engaged with technology that can process any solid carbonaceous material through a continuous feed yielding high oil production, coal, oil sands, waste plastic. This is viable at nearly any oil cost.

  24. this.

    peak oil is inarguable; it will happen. the only thing we can debate is the “when”. Cheap, easy oil is on it’s way out, so we’re left with the high extraction-cost stuff.

    the other factor to consider is that oil-producing countries will continue to consume MORE of the oil they extract as their economies develop, thereby lessening the amount of oil available on the world market. You can see this in both Egypt and Libya, which encourages revolutionary pressures.

    The entire global economy has to be reorganized away from petroleum fuels; and that won’t even begin until people realize the problem. By then, though, it will be serious resource wars time.

  25. Hi Cullen,

    Oil is THE driver of my macro view! There’s a whole sub-tribe of us out there, one of the more visible ones being Nicole Foss (who I’ve mentioned in the past) who contributes to one of the first financial blogs to “get it”, an aggregator with an occasional head article from Nicole called TAE (The Automatic Earth). These days it isn’t updated so often, but it’s still one of my “dailies” http://theautomaticearth.blogspot.com/

    I first got onto Peak Oil in 1998 after reading this article in scientific american: http://www.oilcrisis.com/_archive/ScientificAmerican199803/EndOfCheapOil.htm

    Following up on it, I read Hubbert’s work and stumbled on a rather depressing macro site run by a guy known as Jay Hanson. The site is now very dated as it is not actively updated, but it’s well worth ignoring the shoddy formatting kind of crazy feel. Don’t shoot the messenger, actually read the content there’s value there: http://www.dieoff.org

    Jay later started up various yahoo groups that I joined and contributed to and which spawned many other groups. He is often referred to as the grand-daddy of modern peak oil. Choose any prominent peak oil commentator today and you can probably trace them back to these groups.

    The signal to noise ratio in the core groups was higher than any I have subsequently encountered (including the comments here on TPC). I was very much an intellectual minnow there. Some of the community later joined forced in the real world to form ASPO (Association for the Study of Peak Oil and Gas). I can vouch for these guys, I joined one of the chapters myself, they’re “clean”. http://www.peakoil.net/about-aspo

    Loads of people went on to develop their own sites from these online communities, I did too (although the site is now long gone). One of the best sites to come out of it was the oil drum which I strongly recommend adding to the dailies (although it’s below peak now, it’s still good for a “proper” macro view): http://www.theoildrum.com/

    Nicole, who I mentioned earlier, was a frequent contributor there. I give her special mention because it was her who came into the groups years ago and directly opposed the dominant view (which I held), that oil was going up to $200 / barrel and beyond. We thought she was nuts, I argued against her directly, but she had a superior understanding of the global credit environment, she argued that oil prices would crash spectacularly once the housing bubble popped, and she was right. Mainstream media ignore people like Nicole, particularly the financial media, but she was way ahead of all of them and got the calls right while they were all dead wrong. Jay was the guy I credit with getting me into “Peak Oil” before it was named such, Nicole is the one I credit with getting me into economics. Ellen Brown is the one I credit with getting me into chartalism, and one Cullen Roche with getting me into neo-chartalism (MMT). Energy and Credit together are what I consider to be the two most important components of my macro view.

    Happy to point you to loads of peak oil reading if you want (I researched it heavily from 1998 to 2006). Wikipedia these days doesn’t do a bad job of handling the topic and linking to material, much I’ve read and can vouch for: http://en.wikipedia.org/wiki/Peak_oil

    I warn you now that if you start down this path it will branch extensively, all of it required. You can get ahead of the branching by reading “State of the World”, a publication that is put out once a year by the Worldwatch Institute. I’ve read not all, but many of them, and highly recommend them, in fact I find a person’s macro view hard to take seriously if they haven’t read such publications. The data is credible, I’ve backtraced it many times and it checks out. I haven’t read State of the World 2011, but I believe it has an innovation focus so you might like it: http://www.worldwatch.org/taxonomy/term/38

    Peak Oil is no joke and it’s very, very real. Doesn’t matter if it’s now or in 10, or 20 years. If we haven’t already got infrastructure in place to replace what relies on oil by the time we realize we’re on the downside, then it’s already too late to make a transition because there will be insufficient (zero) surplus capacity. The consequence will be global economic contraction (real, not necessarily nominal), economic collapse and more wars, particularly in the Middle East over what’s left of the oil (which is less than most people realize given the lies Saudi Arabia has told about its reserves. Read Simmons: Twilight in the Desert).

    I can assure you that nobody takes it more seriously than the Pentagon, as it is the single biggest purchaser of oil in the world, responsible for sourcing oil for a military that burns ~400,000 barrels of oil per day (half of which goes to the air force). It’s greater mission is not securing oil for itself, but to secure oil supplies for the USA in general, as the entire economy depends on access to cheap oil. Take that away and the US economy is finished. Some good general reading here can be found in the Joint Operating Environment reports, particularly for 2008 and 2010:

    http://www.globalsecurity.org/military/library/report/2008/joe2008_jfcom.pdf
    http://www.peakoil.net/files/JOE2010.pdf

    This kind of stuff is absolutely required reading for a solid macro view IMO. A topic like MMT is interesting when it comes to understanding how the world works, but it is a very minor component relative to geopolitics. Sorry to bomb your already huge TODO (reading) list with more stuff, but seriously, put it at the top. It’s essential to get on top of who has what energy resources in the world and what it means politically and economically.

  26. Cullen,

    I have to say that I’m relieved that you are finally addressing this issue. You’re saying yourself that it’s “inexcusable” to not address this as a macro-theorist and you’re right.

    As much as I’ve learned perusing your various articles, my biggest concern has been along the lines “he’s talking about future growth and long-term bullishness, but how is that going to work given the upcoming severe shortage in energy.”

    Oil Sands, bioethanol and so many other technologies being touted as “the solution” will not work because their energy ROI is far too low — far lower than what we’ve become accustomed to with oil and gas.

    We should face an ugly reality: the incredible growth and success of the capitalist systems is built on an oil bonanza which is all but over. Even if we find a quick solution to the various near-term problems that we’re facing (credit bubble and corruption in the financial sector), this won’t help with the medium- to long-term problem which will be energy scarcity — SEVERE energy scarcity.

    Oh, and it’s not oil which is peaking, it’s many more vital resources that an industrial society needs to produce and grow (e.g. metals, rare earths, …). Countless studies show that what we’re facing (or about to face Very Soon Now) is not Peak Oil, it’s Peak Everything.

    If you want some food for thought, I can recommend the writings of Richard Heinberg and other fellows at the Post Carbon Society. There’s also a high-profile website by Chris Martenson, who unfortunately is not into the MMT paradigm at all, but has done a lot of valuable research and publishing on the “peak” problematic. His book is quite valuable (save maybe the parts about finance, which I’m taking with a huge grain of salt now after having studied MMT in some detail).

    Probably a great starting recommendation is the PostCarbon reader at http://www.postcarbon.org/reader/

  27. Abiogenic petroleum is a useless pipe dream. It’s useful to stay in denial about the predicament we’re in but it’s not going to solve anything.

    Much like denying the reality of Climate Change — “it’s just too bad, so it can’t be true.”

  28. No one can guantee anything. It’s a matter of physics first, not will or money.

    At current technological development the potential exploitable energy at current competitive costs is not nearly enough, specially when you factor transports.

    Developing alternatives in a painless way requieres also a good deal of cheap energy.

  29. Whether ‘peak oil’ is real or not, is a matter of physics. Off course there is knightian uncertainty and noise surroinding the issue, but one thing is certain: cheap oil is becoming scarce, and that’s what really matters.

  30. “It’s not that there aren’t technologies that can offer us energy at in a massive scale. There are. The problem is that oil is so cheap compared to them that there’s no much incentive to switch to other energy sources.”

    You are not considering how expensive it will be to transition away from oil. This has to be done at a huge scale. Consider the fact that the VAST majority of today’s energy comes from coal and oil. Transportation and food production mostly relies on oil.

    Even if there is a technology that could replace oil, a huge infrastructure effort is required to put it in place. There’s a big difference between a working lab setup and an entire planet employing that technology.

    Consider transportation: you just can’t replace diesel trucks and gasoline cars with electric cars in a matter of a few years — even if you put gazillions of dollars into it. You’d have to rebuilt a lot of infrastructure (e.g. gas stations) along with it. That’s not an easy feat, especially not if you’re facing other hardships at the same time (i.e. conventional energy shortage, a broken financial system, lack of leadership, you name it).

    “Incentive”, “entrepreneurship” and “available technology” just isn’t enough. This transition will take time no matter what, all the while we’re running out of it.

    Oh, and please give some examples for those “other technologies” that can deliver the needed energy “at massive scale” at comparable energy-return-on-investment to oil, because frankly I don’t see them at this moment.

  31. Yes, I also see way too much optimism from Cullen and many others here.

    To be honest, it’s downright naive to assume that entrepreneurship and the American Spirit will lead to Everything Turning Out Just Fine, if only we would fix the system and spend.

    The massive growth of the past should be seen as an anomaly in human history, a short blink of suddenly available abundant energy — all of which is about to come to an end now.

    We have, in a matter of a few decades, extracted a strictly finite resource which has been lying around for millions of years. We have found a way to extract the fuels and convert them into energy. Now the raw materials are dwindling rapidly and they’re not coming back.

    We cannot pull this off again — it’s just unsound to extrapolate from the past 100 years by way of assuming another big leap in energy technology.

  32. Abogenic oil does not solve anything: the rate of replacement is way off compared to the rate of consumption.

    There will be more ‘peaks’ in this century, but the difference is that oil can’t be recycled, whether it is or not abiogenic, and that kind of waste can’t be sustained in our thermodynamic production system compared to the exergy inputs and potential transformation given current technological development.

  33. Peak Oil is not happening in politics and mainstream media because there’s absolutely NOTHING to be gained by politicians discussing the issue.

    It’s a can of worms nobody wants to even touch, it’s only to cost them votes and bound to brand them as “pessimists” and “tree-huggers”.

    I have now accepted that fact, and its dire consequences.

  34. Peak oil is not arguable, it either is or isn’t. there is plenty of noise and un certainty analyzing it, but it surelly is going to happen soon, we probably are already in a plateau.

    But is not a matter of peak oil, but cheap oil. It takes energy to produce energy, and the more expensive the energy is, the more expensive it will be to produce more energy (produce = transform with available technlogy).

    An other important characteristic of oil is that it can be refined to be a cheap energy vector. Cheap transport is at the core of our current industrial and societal model and also population raise.

    To be a good macro energy there are three things at least you must understand, at least have a strong conceptual understanding of them:
    1) The functioning of the monetary-credit system.
    2) The biophysics of economy (where the flow of energy is the most important one).
    3) How both things are connected and influence each other (and in which order).

    And added bonus is to have good analytical skills to how these issues can shape politics and society. But that can be very tricky, or even impossible (extreme uncertainty).

  35. I should probably also point out that, as peak oil commentators above are no doubt aware, the IEA referenced in the headline article has been WRONG, WRONG, WRONG for years now. This organization consistently under-estimates the problem and then revises numbers towards values previously flipped off as being “pessimistic”.

    After over a decade of research, it is my opinion that the IEA is politicized. There is spin on their numbers and reality is generally worse than the IEA paints it, although, to be fair, they have improved over the years. Still, treat with caution.

  36. *population rails = population growth;
    *to be a good macro energy = to be a good macro analyser;

    sorry fast typing.

  37. What a great comment, deserves my +1, however lame that might be :-). Reading all this stuff will take me ages…

  38. Oil goes up in price, people use less, people make more.

    Tell XOM they can sell 15 years of forward production at 200$ a barrel and you will have your oil. Deep sea, ultra-deep and shale plus god knows what else all become available at – you know – a price.

  39. It takes energy to create energy. If it requires 1.01 barrels of oil to extract 1 barrel of oil it’s an energy sink. It doesn’t matter if the price is 100 or 1000$ per barrel, the project will never happen. Shale oil is like that, there’s just too much energy involved in extracting it and too much time required. Tar sands are slow and painful, deep/ultra-deep water are extremely limited and have a completely different depletion curve.

    Price is not the determining factor.

  40. I totally agree peakoil. The only saving grace is to believe in mans intelligence to progress to a point where it will conquer animal instincts before man destroys the planet. If anybody thinks that mankind is very intelligent at this point in time then you are not a forward thinker.

  41. Hey man, America is already going to war over oil. Like the gallon of coke analogy. Invest in everything oil, you just aint seen nothing yet.

  42. eroi of 20:1, 10:1, or even 5:1 leaves alot of room for improvement. Peak oil snooze-a-thon continues….

  43. I first heard of peak oil in a freshman geology class in 1969. 42 years later, and it still hasn’t happened.

    Why? MTM has the answer: “”easy oil” is nearly exhausted. With oil exploration and harvesting costs escalating, other technologies including our technology of coal liquefaction become politically favorable. Oil costs will continue to climb as cheap oil is behind us. Scarcity will continue to be affected by technology.”

    Right now, domestic USA oil and gas production are going UP. Fracking technology, plus market price, are generating huge new interest in old petroleum and gas fields, and savvy oilmen have become very rich by buying up old domestic leases thought to be exhausted or pointless.

    Whale oil was going to run out and kill interior lighting, said the prophets in 1860. Horse manure was going to eventually bury US cities, said the prophets in 1890. The grandaddy of them all, Thomas Malthus, said we all couldn’t possibly exist in 2011 because our ancestors would have already starved as they ran out of food and arable land. The time to short human ingenuity is when it accidentally or intentionally destroys us all, as it may someday do. Until then, forget Malthusianism.

  44. Late to the party again.

    Whew, this article is old, man … better late than never to be getting on this.

    Best objective, scientific info on energy I’ve seen on this topic is here:

    http://nsl.caltech.edu/energy

    Older presentations (2007), but little has changed on this, other than recognition. I do take issue with some of his coal stats, but this is quibbling in the grand scheme.

    In terms of websites:

    theoildrum.com
    planbeconomics.com
    gregor.us
    theautomaticearth.blogspot.com

    In terms of opinion:

    I think westerners are going to get used to living as easterners do, over time, whether they want to or not. Easterners use less energy in almost every way in their daily lives. This will factor in more and more into labor costs as time goes on. Peddling a bike is a lot more cost effective solution than driving 100 miles though rush hour traffic in an otherwise empty SUV.

    It’s ultimately all about the ratio of total inputs to total outputs. How many inputs does an easterner use to produce X amount of product vs a westerner – including fuel, salaries, entitlements, pensions, insurance, regulation, etc?* The raw material input costs are nearly the same, but the cost of labor to live and work at what eastern labor would consider to be a reasonable standard of living is vastly below ours.

    *Note none of this is about what “should be”, merely what “is”, good or bad.

    The western standard of living is on borrowed time, to go along with it’s borrowed debt. Fuel use is just one of those higher costs and convenient luxuries we increasingly won’t be able to justify – or afford – competitively.

    In terms of time frame … well I’m terrible at timing …

  45. All these people on here are all so pessimistic and talking about the end of the world coming because of peak oil. How many of you would have ever thought of an ipod 20yrs ago? Nobody. How about all you chicken littles leave the thinking to the smarter people in this world and you guys can go stare at stock charts or something.

  46. The difference between an EROI of 40:1 (old oil fields at the start of the century) and EROI of 10:1 or 5:1 is that they actually designate the part of the economy that will need to be devoted to energy extraction. Modern Western societies are actually based on really large EROI numbers in order to minimize labor and capital devoted to energy extraction. It’s a long journey backwards.

  47. What does human ingenuity has to do with finding coal/oil/natural gas reserves? Nothing! We just happened to hit huge quantities of readily available fossil fuel energy and used them. The industrial miracle was actually a coal/oil miracle, more than anything.

  48. “Look at the data, is bad; but hey, it does not matter, the market is bullish!” Sounds like average Wall St. firm analysis.

    Ok, now seriously, maybe there are a couple of comments which are too much gloom & doom, but there are real concerns about it. And you better leave emotions behind and try to think rationally about it and the effects it will have.

    For starters less consumption per capita and higher cost-push inflation, which means decreasing economic activity and output in the OECD, specially in USA and western Europe. All this will cause problems with employment and social/political trouble.

    And that’s being conservative and only for a start, there sure is going to be a challenge. Oil past $110 barrier in current dollars have always caused recessions in countries that suffered that.

  49. This post and related comments should be put in the best of section, not that it is a state of the art post (no blame here, this topic requires a huge amount of time) but thanks to some comments it allows one to obtain some important keys concerning this (not so) long term critical issue.

  50. Peak Oil – most definitely – is very real. And the upcoming collapse (=demand destruction) of the US (and Europe) won’t solve that problem. It very well could exacerbate the problems.

  51. Jeff Rubin’s perspective on peak oil can be read as somewhat positive. He predicts that manufacturing will return to domestic economies because the shipping costs dominate low global wages. The remainder of his forecast are evident like the death of suburbs and the re-population of city centers, the rise of small cars and cycling due to peak oil.

  52. From what I can tell peak oil is based on current conditions without considering possible economic and technical change. With the current economic slowdown accelerating oil consumption will fall significantly which will extend the date of “peak oil”. We buy much of our oil from Canadian tar sands which run into the United States. My understanding is we have larger reserves than they do. If they can produce oil at the current price so could we. The problem we have is that we are restricted by the federal government which is massively influenced by the green movement. Remove the greenies and there will be plenty of oil. As a side note I know someone who has a Tesla which has phenomenal acceleration and performance. He spent a lot of money to put solar on his house and runs his automobile basically at no cost for fuel. People adjust their style of living to what they can afford. Change is inevitable.

  53. Ultimately the debate centers not on whether peak oil is an ongoing reality but more on, will we avoid the effects of peak oil. I’m in the camp that we will avoid the gloom and doom as we have throughout our history. Transitional plateaus are not without their difficulties but they are necessary. The same happens in the stock market as technological gains of a previous secular bull market are digested. While markets are not perfect, pricing comes very close. Higher crude prices will seed their own destruction.

    Now if peak oil has not occurred than this is all a moot point.

  54. Can you invest on Peak Oil theory?
    How have you been doing in a non-Peak-Oil environment?
    Look at oil stocks as oil retraced to >$100. Look at oil sands stocks, during the Arab spring. Look at XOM annual report … can you even figure out their *oil* reserve life?
    For now, I’ll park Peak Oil, with world pandemic, Baptist’s “invasion of the yellow hoards” and Mayan 2012 (ok at least the last one is looking credible!).

  55. Can anyone tell me of any resources that “world kind” has depleted?

    Anthropologists, have theorized that the caveman was also fearful of peak fire…

    The winner of this question, will receive a replica of the Passenger Pigeon..

  56. An enormous fusion reaction is sitting a little less than a hundred million miles away. It will last for billions of years. Call me a !@#$ing hippie, but I think we’ll be able to make good use of it.

    Different energy sources and the employment thereof will result in a different economy and different lifestyles, but I don’t see any reason to think they will be objectively worse. It will probably require competent top down direction and a public that’s not burying its collective head in the sand with anti-intellectual, anti-science Panglossian nonsense, but circumstances will probably bring even our own dysfunctional body politic along for the ride.

  57. With that positive bit said, global warming will probably wreck us regardless.

  58. Can you tell me of one instance where humans went from a higher to a lower grade energy source? We went from wood/whale oil to coal and from there to oil/NG. Especially oil holds some really exceptional characteristics (liquid in room temperature, tremendous energy density, extremely low energy investment to extract it until now).

    There’s really no other energy source with that high a score. Even if we found an abundant energy source (nuclear fusion) we ‘d probably use it to synthesize oil from CO2 and water. Transportation (car, airplane, ship) more or less requires a liquid, high density energy source.

  59. Fracking is showing all the characteristics of subprime and it will experience the same outcome as subprime. Suggest reading this: http://theautomaticearth.blogspot.com/2011/07/july-8-2011-get-ready-for-north.html

    This would indicate peak US fracking before 2015 (gas anyway). Peak US oil has already been and gone, transfer of fracking technology to oil production may, or may not get US production back up to the earlier highs (probably not), but even if it does, it won’t last long at all.

    Law of diminishing returns applies here. The easiest resource was extracted first and has already peaked (globally). New technologies require greater expense for lower returns and for all that effort, only end up shifting the peak by a few years to the right. In some cases, such as water injection, new technology can actually decrease long term recovery in pursuit of short term gain (a problem afflicting the Saudis now).

    New technology really helps when it entails a quantum leap. Eg, tape to CD to iPod, or crude to fusion. But so far, the new technology in energy resources is iterative improvement on what already exists, not the leaps required. I’ll get macro bullish when I see truly game-changing technologies viably ready for the market, until then I’m still a macro bear.

  60. That sounds a lot more reasonable.

    What I was saying, however, is that the easy ways we all got so used to are soon to be forgotten. It’s far easier to burn abundant oil and coals than it is to maintain huge solar arrays and be energy efficient.

    All the “growth” that still keeps getting projected is *NOT* based on the assumption that we have no more oil.

  61. A short peak oil primer here, with links for more information:

    http://www.energybulletin.net/primer.php

    The key to understanding why peak oil is a reality lay in Energy Returned on Energy Invested (ERoEI). During the early part od the twentieth century we got a return of 1 to 100, meaning that for every unit of energy we invested we got one hundred units out of the ground. ERoEI average is now down to roughly 1 to 15-20. For the deepwater stuff and oil obtained from shale and tar sands the EROI is 1 to 10 or less. These unconventional sources are the only large resevoirs remaining, so ERoEI will only continue to drop. Most estimates suggest the oil industry needs an ERoEI of 1 to 5 to maintain profitability, and when we fall below that level oil as an energy source is finished.

  62. KK, you make a very valid point, with the answer of no…

    Could you please answer my question, at the behest of Col. Drake..

  63. That raises a question: does the CBO (or any other official entity in roughly the same business) make any assumptions about energy whatsoever in its projections?

  64. My skepticism about peak oil has not dulled my appetite for energy stocks. As I was sitting on the Cross Bronx Expressway on a Friday night about 10 years ago, with car and truck traffic converging from different directions as far as I could see and crawling along at 5 mph, the thought hit me: I need to be buying what everyone is burning, especially since the Chinese aspire to what we already have. I agree that the easy oil is depleting, although government is making things more difficult.

    When XOM went into gas/fracking assets in a big way, I started to buy a little too. They know what they are doing in fossil fuels, and I will take their judgment at face value on the issue.

  65. I thoroughly endorse your philosophy there. The caution is in exactly how you position yourself. Reading through the links I pasted, as examples, above, I’m left with the conclusion that fracking is artificially suppressing the price of gas. A long term contract to buy at current prices therefore makes a lot of sense.

    Conversely, buying into the companies that are over-leveraging themselves into the Ponzi component of fracking is a very bad idea. It makes more sense to be shorting them as a deeper look into the numbers raises an awful lot of awkward questions, such as how current reserve statements can *possibly* be justified.

    As I see it we’re got a few more years until frackers get royally fracked and the price of US nat gas surges back to where it should be.

    This all said. There was money to be made riding the subprime boom. It was risky but it could be done. Enough warning signs were given that it was going to blow to enable a punter to get out in time. Myself, I thought it was going to blow in 2006 and called a peak then. Too early. Probably doing the same here with nat gas.

  66. Dodos. I would like to eat one. Where did that resource go?

    Can I have my carrier pigeon replica please?

    Thousands of other species representing potential or realized resources wiped out by human over-exploitation or habitat competition.

    One could argue that this is irrelevant in many cases as the generic resource lost (eg food) was replaced with an equivalent resource (generically). For example, claiming plains for farmland and wiping out native grazing animals to be replaced with cows. The problem with this argument is that, by the same logic, I should be able to swap a fellow’s Ferrari with my Fiat and he should be fine with it because a car’s a car.

    Genericity is the defense used when it comes to energy resources. For example, moving from whale oil to crude oil. In these examples, a Fiat is being replaced by a Ferrari which is great! Extrapolation of this is used to justify claims that peaking oil is not a problem as we’ll find a generic equivalent and it too will be better than what preceded it qualitatively.

    The argument being made by Kostas, which I agree with, is that there doesn’t appear to be a higher quality replacement on the radar. (Fusion would cut it, but where is it?). Instead, we are actively pursuing technologies such as wind power and solar power, which are lower quality than fossil fuels. The era of getting Ferraris in place of Fiats is over, and we are now entering a period where we have to take Fiats in place of Ferraris.

    Suddenly, genericity doesn’t seem so attractive. We’re going to have big problems as the quality of our core energy resources degrades. There is no technology that enables solar energy to directly power a jet aircraft. It doesn’t matter if, generically, the joules available are the same, it’s energy quality that matters.

  67. Globalization is build on top of two things:
    1) Globalization of financial capital (flows).
    2) Globalization of production thanks to cheap transports.

    The biggest problem end of cheap oil will cause in the short term is expensive transportation and an end to our current model of production AND logistics, this is globalization will be done as we currently know it.

    Not only that but ‘transporting energy’ will be equally difficult and way more expensive than now, for anyone who knows, oil is very convenient as an energy vector due to its concentrated energy which no other source can right now substitute in a massive and competitive way. Not that it can’t happen, but right now there is no way it would happen.

    A change to the infrastructures, logistics and transportation networks, even current urban development in places like USA (totally inefficient, and USA is already paying it big time in its balance of trade, SO you are already feeling the pain of increasing oil prices) would take decades and a lot of cheap energy readily transportable.

    A lot of low value goods will not be cost effective to produce abroad, shortening supply lines and eliminating redundant transportation will be of most utter importance. The reliance on electrified transport (rail) will increase a lot.

    The impact of all this will be huge on the economic outlook of different world areas, competitiveness will decrease and there may be some stagnation on different corporate sectors (as well as increasing intervention of states). This in the end will affect zombi-financiers and global financial capitalism as well.

  68. It’s going to be very difficult for nations that were laid out according to the car. At least in Europe, villages were laid down before fossil fuel transport existed. In my wife’s home village, for example, people live not so far away from how they lived hundreds of years ago. A high number of small farms, cooperative farming practices, field rotation, horses still the primary form of transport in very steep terrain, water direct from the mountain stream, etc.

    But in nations like America and my own (Australia), with sprawling suburbs punctuated by huge, widely spaced malls, shelves filled by long-haul road freight, huge mechanized farms with few workers, costs are going to get very high and the quality of living will decline uncomfortably.

    A transition is surely possible, but politicians operating on a 2-4 year horizon lack the will or courage to engage multi-decade programs that must take us backwards before we can go forwards. The required transition therefore won’t start to occur until problems have already arrived, a time where there won’t be any surplus capacity to empower transition without subtracting from existing applications. People will not be happy about this, governments will be replaced, economies will contract, old aggressions will resurface, it is already happening.

    Capitalism doesn’t look 20 years ahead. It looks to the next quarter.

  69. Mediocritas, despite your noble retort, you failed to answer the question and as such, are not eligible for the Passenger Pigeon Depletion Award…

    The fact is, no one will answer the question because it is a rejoinder to the “peak oil” question…

    Ever since, Col Drake, successfully drill the first well in 1861, there have been repeated concerns of oil depletion…It is a simple cycle of expansion and decline of production and each and every generation comes
    forthwith, with the empirical knowledge to forecast future events…

    What is beyond dispute, is that each succeeding generation produces superior skills and it is those byproducts that reshape the world in terms of efficiency and production…

    In order to believe in “peak oil” one must disavow man’s ability to answer future problems…

    Furthermore, I believe God Almighty has provided the ways and means for man to address future challenges, after all why would he design his planet any other way…!

  70. A Prius for everyone and the U.S. reduces it’s oil needs by 20%. A Nissan leaf for everyone and we reduce by 40+%. I realize that is a simplistic argument but it just seems to me that the problems of peak oil can be pushed out over and over again.

  71. Hangemhi, excellent demonstration of reducing an argument to a simple, single element…

    A market change to compressed natural gas, would also do the trick…

    But in doing so, we would risk damaging the membership to The Club of Rome…

    Be rest assured, that one of these days the Peakers will peak out…

  72. when you’ve read last time “Hubbert’s Peak: The Impending World Oil Shortage” ? read it – it explains with scientific details why your general speech is just that, general speech.