I will have a new post up in a day or so (working with Vinod Khosla on something, and then I will finish that bio-butanol post), but until I get that finished, I will recycle this one (from 5/4/06) that details my views on Peak Oil.
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Perhaps like many of you, I spend a lot of time trying to predict what the future holds with respect to Peak Oil. I want to know what the effects will be to the U.S., the world, the economy, my employer, but first and foremost I want to know how it will affect my immediate family and me.
I am not a “doomer”, but I do think we are facing a very serious challenge. I think the affects of Peak Oil will be unprecedented, but I don’t think it is going to throw us back into a pre-industrial existence. If the peak happened suddenly and with little warning, followed by a rapid oil depletion rate, then the scenario would be disastrous.
One of the things that I believe is going to “save us”, so to speak, is the supply/demand imbalance that is currently opening up ahead of Peak Oil. China and India are both increasing their consumption of oil, and it is providing steady upward pressure on the price of oil and gas. This is causing gasoline to become quite expensive, and over time should cause people to start making the necessary adjustments. If you are a “doomer”, you should embrace higher gasoline prices as something that will give us more time to prepare for the aftermath of the peak.
I view the aftermath of Hurricane Katrina as a preview of things to come. Around 25% of the refining capacity in the U.S. was knocked offline. Prices immediately reacted to this to prevent consumers from draining gasoline inventories. Gasoline became very expensive, and suddenly people started to cut back on unnecessary travel. I personally cut out unnecessary driving, as I am sure did most people. Demand for gasoline dropped, and is still down somewhat from historical levels.
Over a longer time frame, if gasoline remains expensive, people will start buying automobiles with higher fuel efficiency. People will begin to base their housing decisions on proximity to work. People who have never considered car pooling or public transportation will do so. Granted, changes in auto and housing markets will take time before the cumulative effects make a dent. But a prolonged period of very expensive gasoline prior to the peak, which is the scenario I expect, will help spur these changes.
Now, that is what I think will happen. But I have to consider the possibility that price will not stem demand as much as is necessary. I am making the implicit assumption that we can merely raise gasoline prices until supply and demand are balanced. But that is probably not a realistic option. Why? Because who will benefit from those higher prices? Oil companies. If you think the public is outraged now, wait until gas is $10 a gallon, people are suffering as a result, the economy is tanking, and ExxonMobil posts the first ever $100 billion annual profit. I will probably have to wade through protesters to get to work in the morning.
The vast majority of the country will blame Big Oil for their woes, and they will resent that Big Oil is profiting from it. How will the public react? How will the government react? No doubt there will be legislation designed to combat the problem, but of what form? Will the government institute rationing? Will they attempt to nationalize the oil companies? If they did, would it mitigate the problem in any way? Should I buy farmland so I can grow my own food if necessary? Should I store a few thousand MREs in my garage?
When Will We Peak?
I know a lot of people believe the peak is on top of us. Some are suggesting that it occurred in the 4th quarter of last year. At one time I had compiled a dozen different peak predictions based on rigorous studies. Nine of the twelve predicted a peak between now and 2016. Another (Shell, I believe) predicted a peak around 2025. The Energy Information Administration (EIA) predicted a peak around 2037, and one study essentially predicted we will never peak.
I monitor oil inventories and production pretty closely. I know that some of the curves look as if oil production is topping out. However, consider that we still have 300,000 barrels per day shut-in in the Gulf of Mexico as a result of last year’s hurricanes. Nigeria has taken more than 500,000 barrels per day off the market due to the unrest there. The war in Iraq has taken over a million of barrels off the market. Those are the factors driving the current flattening of the oil production curve. As one very knowledgeable insider recently told me “I believe that the peak oil theorists have been mistaking resource access and geopolitical issues for peak oil”.
I believe this person was largely correct. The oil is there for us to continue ramping up production for several years, provided the access issues can be negotiated. I see a decent probability that we will peak by 2016, as was predicted by 75% of the studies I had collected. I just don’t see it happening this year or next year. I see near zero probability that the peak will happen as late as 2037, as the EIA suggests.
A peak in the next year or so would be disastrous. A peak in 10 years will give us a fighting chance, provided gasoline costs stay high until it is clear that a peak has occurred. I view fear of a peak in the next year or two as largely a good thing, because it should mobilize some people to take the steps needed well in advance of the peak.
A significant challenge right now is education. I was in Walmart yesterday, and as I am apt to do I watched the faces of the people shopping. I wondered how many of them are aware of the problem facing us. How many of them know that their lives will be profoundly impacted by their ability (or inability) to acquire energy in the near future? Sadly, most of them were probably blissfully unaware, attributing high gasoline prices to the current political climate and just waiting for the relief they are sure is coming. These people are unaware that a storm is coming. Ten years of storm warnings may give some of them time to make the necessary changes to their lifestyles. If the peak hits in the next year or so, they may very well be like Galveston residents in 1900 who were unaware of the severity of the hurricane that was coming until it was on top of them. And if the vast majority of the population is unprepared, it really won’t matter that some of us saw this coming. We will all be in trouble together.
Robert, there is a great article in this month’s Reason magazine discussing this very problem! I can’t believe I was properly prepared to read one of your posts.
I feel less dumb this time.
It is a shame that it seems to take a ‘crisis’ to get most of this county’s population – especially its political leaders – to do anything about an issue.
Being a cynic, I suspect that there will be no meaningful government response to this until 2038 (providing the USGS Peak Oil prediction is the correct one…) and then I believe the response will be military.
Woe is us….
Robert,
I am an administrator on OmniNerd.com, a site dedicated to nerdery, and I wonder if you might be interested in writing an article on Peak Oil.
OmniNerd features daily news and discussion as well as original articles that cover just about every area of academia and technology. ALl articles have one thing in common, however; they are well documented, highly reviewed, and (of course) nerdy.
OmniNerd also offers resources to write the article online, collaborate with other users, and receive all the feedback you want from OmniNerd Moderators.
I invite you to take a look around OmniNerd (at the articles, specifically) to see if this is something that might interest you. If you have any questions, feel free to contact me at the email below. I look forward to hearing from you.
-Brandon Hansen
brandon@omninerd.com
Robert-
I agree with most of your reasoning and hope that your scenario of 10 years out is the case in fact. Personally, however, I am on those 19 acres with my first garden ever (I am 50), with scads of books on self-sufficiency, solar everything, distilling alcohol (for medicinal and barter purposes only – right), and on and on and on. My entire mindset is growing out of the finitude of cheap fossil fuel. Through out my day I am aware of how much energy this uses or that uses, and what will I do when the cheap energy is not cheap anymore. And with the exception of one individual, one of more than 50 that I have tried to converse with on the issue of oil depletion, the response has been denial or ignorance. People seem so very wrapped up in their lives and their living that there is no time for thought, there is only reaction.
I lived through 4 hurricanes on a small island in the Caribbean. We were without power for months at a time, without communication for longer (and this, an American territory). After the first hit, warnings of an impending storm were no longer taken for granted. Sometimes all that preparation was for naught as the storm took a turn north and missed us altogether. But I was unable NOT to prepare. Unfortunately, the first “hit” for oil depletion was 35 years ago and memories are short.
I think having a “Plan B” (and “C” and “D”) ready for community-wide implementation is very important (and to have it known that you have a plan) so that if the SHTF and the leadership has nothing to offer, all is not chaos. It costs nothing but time and thought. Hurricanes do have a tendency to cause one to straighten out priorities.
Thanks for your thoughts-
Philip
Robert:
I analyzed this question of whether the plateau shape is due to various short term losses here. It seems very clear to me that it isn’t. If you still think otherwise after you’ve read that, I’d like to see your quantitative support for your views on it.
Stuart Staniford
Hi Stuart,
I had seen your analysis. I will make a few comments. First, I think if you add the trend line back in and compare the curves with and without the shut-in production, you are going to see less flattening of the line. In the case where you do not include the shut-in production, the end of 2005 is sharply down, which will flatten your trend line. Including the shut-in production shows an upward trend at the end of 2005.
Second, shut-in production is only part of the story. Producers try to bring supply on to meet demand. They plan these projects years in advance. They do their economic justifications based on the forecast price of oil. In 2003, most external forecasts projected oil at (believe it or not) about $25/bbl through 2010. If I am a supplier in 2003, the last thing I want to do is bring too much production online in 2006 at a price of $25/bbl. However, they anticipated incorrectly. A lot of supply was shut-in for various reasons, and the price was much higher than the forecasts had predicted. So, the extra production will not be coming online when it is needed, but will be coming online as quickly as they can get the projects done.
Third, and probably my biggest criticism, is the very narrow time frame you are examining with your graphs. If you extend it to 10 years, you will see perhaps 3 plateaus in production, including at least 1 period in which production declined from 1 year to the next. The fact that there is a plateau does not necessarily represent depletion, but often it represents an incorrect anticipation of when supply would be needed.
I think what you are doing is a good exercise, and I think it is important to communicate Peak Oil to the public. But you are putting your credibility on the line here, and I don’t think you are considering all the factors involved, nor the fact that plateaus have historically occurred. I think your predictions are a bit early. My fear is that when production does turn upward, as I am almost certain that it will, a lot of people will discount these predictions in the future, even though sooner or later one of them will be correct.
Finally, note that I am not projecting the peak 20 years from now. I believe it will happen sooner. But I don’t believe it will happen before 2010 (which is still very soon).
RR
This is the kind of stuff I like to read when I want to feel hopeful, can ignore the declines in the giant oilfields, the lack of new ones, the utter cluelessness of the conversation here in the US (“ethanol will save us”), the growth-at-any-price mentality, and the Imperial hallucinations of those in power. I in fact agree that the peak is about 6-10 years away, but that’s not time we’re going to use to prepare, we’ll just blame the evil oil companies and whine every time the price goes up. As the Hirsch Report points out, we need much more time (and focus) than this to prepare, and we’re not even getting to the starting line today.
I think the affects of Peak Oil will be unprecedented, but I don’t think it is going to throw us back into a pre-industrial existence. If the peak happened suddenly and with little warning, followed by a rapid oil depletion rate, then the scenario would be disastrous.
Robert,
I don’t think the peak will happen suddenly but it will have pronounced effects.
What many don’t realize is that there is still more oil under the ground to be pumped out than has already been pumped. The peak simply means we’ve already gotten the most easily pumped oil out, and that the available supply will drop off as worldwide demand soars. Oil will continue to be available, but it will be very expensive by today’s standards. (What a surprise that will be to those in Billings — especially the guy who likes to drive around town in his pickup getting 4 mpg while impressing the ladies. I’m not sure what that says about the ladies in Billings if that impresses them.)
There are still plenty of fossil fuels under ground; the question is what it will cost to use them? I think a lot more people will be living as though it were the 1880s instead of the 1990s. Life in the 1880s wasn’t all that bad, but it will no doubt be a shock to some.
At its heart, the real problem is more than six billion people wanting to live at the same standard of living (and energy consumption) as those lucky hundreds of millions living in the U.S., Canada, and Western Europe.
One of the most telling statistics of all is that the U.S. has about 5% of the world’s population, yet consumes 25% of the world’s energy. If the other 95% want to live and burn energy as we do, obviously there will be tremendous strains on the system. (The kind of strains wars and revolutions are made of.)
Regards,
Gary Dikkers
You may be an expert on your own company’s matters, Robert, but Stuart Staniford has a broader focus. One of the things which just popped up over at The Oil Drum is that Saudi Arabia appears to be saying, however obliquely, that its oil production is set to decline. This is despite a large increase in the number of drilling rigs. This exactly follows our experience with Texas. That 300 kbbl/day “shut in” in the GoM? That’s gone; it was mostly fields with declining production, and the oil remaining in them isn’t worth drilling new wells to recover. It may never be, especially if we’re forced to power our drilling rigs with petroleum. (It would be very interesting to see an analysis of drilling and production rigs powered by wind, or even PV.)
Face it, peak oil isn’t in 2017 or 2025; we’re seeing it now. The only way your nightmare could be worse is for another bad hurricane season and the spread of pipeline bombings to the rest of the Middle East. (Tertzakian is good, but wrong; the world will never see 90 million bbl/day. It won’t even see a sustained 1000 bbl/sec.)
A big chunk of that shut-in gulf production is due to Shell’s Mars platform being out of service. They are working on bringing that back online, and you will see production in the gulf ease back up.
My position and Stuart’s are not as far off as you might think. I am not arguing for peak oil in 15 or 20 years. I am just saying that it won’t happen in 2006, and I don’t believe it will happen before 2010. I base that on a lot of spare production capacity in Canada, Montana, Wyoming, and North Dakota, growing inventories in U.S. crude stocks, as well as the 2006 megaproject report.
RR
Robert,
In this article, you write “The USGS predicted a peak around 2037…” and “I see near zero probability that the peak will happen as late as 2037, as the USGS suggests.”
In the interests of accuracy, you should know that the USGS has never made a peak oil forecast. The USGS World Petroleum Assessment was concerned solely with the amount of oil, in the ground, which could potentially be discovered in the period from 1995-2025. The study explicity did NOT attempt to assess discovery/production rates.
“Note that the geology-based Seventh Approximation does not attempt to predict volumes of conventional resources that will actually be discovered in a given assessment time frame. To do so would require full knowledge of future petroleum economics, exploration technology, and exploration effort at the assessment-unit level. Rather, the Seventh Approximation estimates volumes of conventional resources having the potential to be discovered in the stated time frame.”
http://energy.cr.usgs.gov/WEcont/chaps/AM.pdf
The prediction you refer to was made by the EIA, not the USGS. If you want to pin the forecast on the USGS, you need to produce a document from the USGS containing a peak oil forecast. I have read extensively in the USGS materials/website, and never found any peak oil forecast by the USGS. In fact, the USGS has gone out of its way to NOT make a forecast because that would lie outside their area of expertise. They are geologists, not economists or experts in issues like nationalized oil and resource access.
The prediction you refer to was made by the EIA, not the USGS.
JD,
I have the presentation downloaded, and it is as you say. The EIA made the prediction based on USGS numbers. I will make the correction. Thanks for the information.
RR
The shoppers in Wal-Mart think God will somehow lower the gasoline prices after he takes care of business in Palestine. They look at the rise in gas prices as something God is asking us to endure because that’s what good Christians do.
As a Canadian I would like to throw some numbers into the discussion most of which have come from http://zfacts.com/p/218.html.
How accurate they are depends on your point of view.
First of all the US gets most of its petroleum products from Canada. Basically, if this trend is to continue, it means that you will have to depend to some extent on the relatively new Alberta Tar Sands, a heavy oil extraction area in northern Alberta. There are some 280-300 billion barrels of oil available here, with Alberta having some 1700-2500 billion barrels of oil in reserves. This places it first in the world, with Saudia Arabia in #2 position and Venezuela in #3. But you are going to have some competition even though the majority of oil companies operating in the Tar Sands are American, because the Chinese and India are expressing interest in this development. However, there are significant problems with extracting the oil from the sands. Costs are about $25 per barrel, compared to the Middle east were it is as low as $5, or the Gulf of Mexico’s deep wells at $15 a barrel. Environmental problems are also creating additional concerns. The town of Fort McMurray with a population of 61000, the centre of the area, emits more greenhouse gas then all of Denmark which has a population of 5.4 million. They release 3 times as much CO2 in their production than conventional crude refineries. Toxic lakes are formed with the sand remnants for which they have no way of cleaning up at the present. Since this is surface extraction the left over block of countryside resembles the moon’s craters.
Meanwhile, we have big money from California coming into our area of British Columbia developing golf course resorts valued, in this case, at $750 million. Using some of our agricultural reserve land, our minimul water resources, which I expect will be desperately needed when the “time” comes, we simply don’t have the resources or the will of our own tax hungry officials to fight them. Believe it or not, we too have a lot of ignoramuses that haven’t a clue on climate change or peak oil.
I’m reading “The Black Swan” right now, Nissim Taleb’s latest book on randomness and unpredictability. It’s a little choppy, and doesn’t flow quite as well has his earlier “Fooled by Randomness” …
But both books help one develop the discipline to say “I don’t know”, or “I think this for now”, or “I think I’ll change my mind.”
Peak oil has too little of that. I mean, I got something out of “the movement” while I formed my ideas, but I left when I noticed people “scripting” the future, and then woodenly sticking to their own scripts.
The script is not the future, and the future, while it may have elements from various scripts, is very much unknown.
(I think we are loosely at peak oil, and in the midst of some transition, but I’m not going to be more specific (more scripted), and I’m going to keep myself ready to change my mind.)
– odograph
Do they have WalMarts in Aberdeeeeen?
But both books help one develop the discipline to say “I don’t know”, or “I think this for now”, or “I think I’ll change my mind.”
This is the religion of peak oil. A lot of people treat this as dogma. Every piece of evidence that could be interpreted one way or another is favored in toward the preconceived notion. For instance, we don’t really know if Saudi’s cuts are voluntary. I suspect that they are, but I also suspect that we will know before too long. But tell a believer that the cuts might be voluntary, and watch the reaction. (I don’t mean to paint with a broad brush; there are some who have done pretty rigorous analyses and think their cuts are not voluntary).
I don’t understand why it is so hard to say “I just don’t know, but I will gather facts and then tell you what I think.” That is the scientific approach, and the approach I favor.
Cheers, RR
Do they have WalMarts in Aberdeeeeen?
Yeah, but they are called ASDA (owned by Walmart) and don’t have as much of a selection as a U.S. Walmart. For instance, I needed an extension cord a few days ago. ASDA didn’t have one. Walmart in the U.S. would have had 20 different varieties of extension cords.
Cheers, RR
“I don’t understand why it is so hard to say ‘I just don’t know, but I will gather facts and then tell you what I think.’ That is the scientific approach, and the approach I favor.”
Taleb’s answer is that we need storytelling. Not only does it “make sense” of the world, but it might actually be how our brains memory systems work.
(People told facts in a story remember them far better than facts alone. More importantly with respect to peak oil, people told facts in a story believe them more than facts told alone.)
– odograph
Hi Robert,
What do you think is the most realistic source of alternative energy we can pursue after peak oil occurs? I know that we should really be conserving more, but that doesn’t seem to be happening anytime soon.
What do you think is the most realistic source of alternative energy we can pursue after peak oil occurs?
I think the only real possibility of maintaining anything close to our current level of mobility is to convert to electric transport and use combinations of wind, solar, and biomass to produce the electricity. That could work. There are no liquid fuel options – outside of coal-derived – that I can see scaling up enough to make up a majority of our current demand.
Cheers, RR
Every commentator that I respect has come to the same conclusion about ground transportation, that is, we have to electrify and generate the electricity from renewable sources. Of course, this is a huge ask of renewables, given that the most optimistic forecasts suggest renewables could only supply around 30% of our current electricity needs, let alone supply all the energy for ground transportation as well.
Robert, have you seen any technology (or carbon neutral fuel) that could replace jet aircraft, or is even remotely plausible?
Also, just wondering what changes have you made to your lifestyle to reduce your oil usage and carbon footprint?
FYI: I bought a diesel car with roughly 40% better fuel economy than my previous car, bought a bike for short trips to school, supermarket etc, I pay extra so my electricty comes from renewable sources, and this week I am installing solar hot water. I have made just one flight this year (for a family wedding) and I’ve also replaced several inefficient household appliances with the most efficient appliances I could find.
If you think the public is outraged now, wait until gas is $10 a gallon, people are suffering as a result, the economy is tanking, and ExxonMobil posts the first ever $100 billion annual profit. I will probably have to wade through protesters to get to work in the morning.
Depends on how fast it happens. $10/gal by the end of 2007 will probably cause the scenario you describe. But $10/gal by 2010 is probably a different matter. Notice the “shock and awe” the first time gas hit $3/gal. Second time we barely notice. At the same time people are quietly adjusting their behaviour, as the Big 2.5 are discovering at their cost.
Eventually $10/gal leads to one of two things:
1. A silver bullet that delivers us from oil. I know, hard to believe, but then who knows the future?
2. No silver bullet, so we all become very conscious of how much energy we use, and how to cut back. Think the Europeans live on low energy? Just wait to see how $10/gal stimulates the imagination.
The big question is whether those dimwits in Washington will have the good sense to stay out of it, until we reach the new equilibrium.
Think the Europeans live on low energy? Just wait to see how $10/gal stimulates the imagination.
I agree with you there. We have a lot of fat that we can cut out as prices start to rise. In fact, I have a post floating around in my head on price versus demand. I have a paper that looked into that. I need to get that posted.
Cheers, RR
MSNBC are running some interesting articles on the subject. One states that: There was a definite consumer reaction in September 2005 after Hurricane Katrina outages pushed prices above $3 gasoline for the first time. Demand dropped as much as 6.5 percent. Interesting graphic on page 1 of this article.
But then there is this interesting statement: After peaking at 9.7 million barrels in the week of Aug. 4, 2006, U.S. gasoline demand hit a low of 9.0 million barrels during the week of Jan. 19, 2007 — a difference of 7 percent. During the same period, the average U.S. price peaked at $3.083 in August and fell to $2.213 by the end of January — a drop of 28 percent.
He obviously ignores important factors, such as inventory levels. Nonetheless, how does the 7% cut in demand = 28% cut in price sound, Robert?
Nonetheless, how does the 7% cut in demand = 28% cut in price sound, Robert?
I actually have a paper on price versus demand. I need to write up something about it and post it. Not sure if the numbers above sound right without looking.
Cheers, Robert
Its all over. If you cant see that now, then you will be on the sideline of the “literal” end of the world. When the US sees a 7% disruption in oil supply, anarchy and marshal law will rule the day. You people think this is 5, or 10 years away? Your nuts! Read the data. We are there NOW! Defend yourselves. Grow food. Survive. Our governments will horde our supplies. There will be no fuel at the pump. You will not be able to get food, or go to work, or whatever else. Its all over. 3 years at the outside.