It's a sight we will see more often in the near future

On four different occasions this week I was asked about the meaning of the term Peak Oil and my take on it. First one to ask was our 25 year old son, who I have never known to have these type of interests or concerns. But when last night during the monthly European American Business Club meeting, it was once again brought up in a conversation, I started to wonder if people really understand the term and its consequences. In my findings it turns out that vague interpretations and misunderstanding has swept the media, which in turn has led to people often confusing the concept of “Peak Oil” with the idea of “Oil Depletion!”
The term “peak oil” is used to describe the point at which the earth’s supply of oil will no longer be able to meet our energy needs. We are all familiar with the claim that oil is not a renewable energy source, and therefore can and will be exhausted at some point in the future. There is still a lot of debate about the projected date of peak oil due to our inability to accurately take stock of current world oil supplies.But in general I subscribe to the term Peak Oil, but with the side note that in my opinion it does not mean ‘running out of oil’, but ‘running out of cheap oil’, at least for the foreseeable future. For societies leveraged on ever increasing amounts of cheap oil, such as the United States, the consequences may be more dire than for example in Europe where oil has been an expensive commodity at least since the 1973 Oil Crisis.

The History of “Peak Oil”

In the 1950s a U.S. geologist working for Royal Dutch Shell, M. King Hubbert, noticed that oil discoveries graphed over time, tended to follow a bell curve (like almost everything else in our lives). By setting a curve for production on the same parameters as the discoveries, he predicted in 1956 that production from the US lower 48 states would peak between 1965 and 1970. Most people inside and outside the industry quickly dismissed Hubbert’s predictions, since it endangered the geopolitical advantages in the Cold War. When in 1970 US oil producers extracted more oil than ever before, Hubbert’s predictions became a fading memory. Yet Hubbert was right, US continental oil production did peak in 1970, although it was not widely recognized for several years, and only with the benefit of hindsight. (Editor’s Note: Shell finally in a report from 2010 acknowledged that Hubbert’s Peak Oil Theory was real).

There is economical and technological logic to the fact that oil companies extracted the easier-to-reach, and consequently cheap oil first. The oil pumped first was on land, near the surface, under pressure, light and ’sweet’ (meaning low sulfur content) and therefore easy to refine into gasoline. But as these cheap options run out, the remaining oil, sometimes off shore, far from markets, in smaller fields, or of lesser quality, takes ever more money and energy to extract and refine. Under these conditions, the rate of extraction inevitably drops. Consequently all oil fields eventually reach a point where they become economically, and energetically, no longer viable. If it takes the energy of a barrel of oil to extract a barrel of oil, then further extraction is pointless.

Hubbert put the Peak Oil situation (the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline) between 1995 and 2000, but could not foresee the Oil Crises of 1973 and 1980, which slowed down his predictions by maybe a decade or so.

Wikipedia remarks that: Optimistic estimations of peak production forecast the global decline will begin by 2020 or later, and assume major investments in alternatives will occur before a crisis, without requiring major changes in the lifestyle of heavily oil-consuming nations. These models show the price of oil at first escalating and then retreating as other types of fuel and energy sources are used.

Pessimistic predictions of future oil production operate on the thesis that either the peak has already occurred, that oil production is on the cusp of the peak, or that it will occur shortly. The International Energy Agency (IEA) says production of conventional crude oil peaked in 2006. Throughout the first two quarters of 2008, there were signs that a global recession was being made worse by a series of record oil prices.

It's not the end of the road

What will the future bring?

I subscribe to the peak oil theory. By that I do not mean that the world is running out of oil, but that the easy availability of conventional sweet, light crude is most definitely in decline. There’s plenty more oil to be found, but it’s overall more expensive to extract and process. We’re talking heavy oil. Or it’s shale oil, or comes from tar sands, or it’s deep under the ocean, which has its own environmental issues and is neither cheap nor easy to produce.

Peak oil is a geopolitical concept. It basically holds that all the low-hanging fruit has been picked, so to speak.  Having experienced and survived the panic and paranoid doomsday warnings of the 60s and 70s, today’s doomsday preachers rub me the wrong way philosophically, in that I have great confidence that human ingenuity will find scores of ways to produce new hydrocarbon fuels, alter the way we optimize its uses, as well as find lots of totally new and economically feasible energy sources in addition. Furthermore, the higher oil prices go, the more will be found – and the more it will be economized. So, in a free-market world, oil is a non-problem as pricing will energize alternatives.

Unfortunately we don’t currently live in that kind of world. So in the meantime – let’s say the next 10-20 years – oil will be an issue, for simple geological and political reasons, reason why the global economy will be highly volatile for an extended period of time.

Most people’s peak oil scenarios reveal a lot about their political beliefs, fears and fantasies.
Of course, the greater majority of the world’s population deny peak oil is imminent, while others suggest that when it does finally happen, free markets will efficiently handle the whole thing, or that technology will come to the rescue with alternative sources of energy. I regard this as living in denial, even though I’m excited about some of the promises of the hydrogen economy, when it can be brought out of the realm of science fiction. Then there are those who see peak oil as bringing in an era of agricultural bliss, or else doomsday.
You could lay out these scenarios according to the proponent’s political views. Furthest to the left you find the green revolution people; at centre-left the technological salvation crowd; at centre-right the free market faithful; and further right the survivalists. I’m not saying there is anything wrong with any of these political positions, just that it’s all a little bit predictable.
Personally, I try to be as apolitical as I can be, and find it harder to tell between left and right once they are in office. I can’t buy wholesale into the above cornucopian, technological, market-led or dystopian fantasies – although I think there is an element of truth in all of them. But I’m not being dismissive, as right now, anything can happen.