Peak oil is the point in time when global oil production reaches its inevitable maximum, and beyond which global oil production will start to decline.
Many people are unfamiliar with the term “peak oil,” but it’s been tossed around frequently over the years as an ominous threat to the world’s supply of oil and the liquid fuels like gasoline, fuel oil, and other products refined from it.
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Over the last century, divergent opinions have continued to arise surrounding the subject of peak oil, ranging from the dawn of a utopian green society to the apocalyptic end of civilization. Think of it as the end of the world as we know it, and we might actually feel fine…or not.
Where It All Started
Peak oil first showed up in 1919 when David White, chief geologist of the United States Geological Survey said, “… the peak of oil production will soon be passed, possibly within 3 years.”
He was referring to the U.S. only which at the time was the primary supplier of oil to the world, but even then he had it wrong when he predicted peak oil occurring in 1922 as oil continued to be found.
And to be clear, peak oil isn’t about running out of oil. It’s about that point in time when oil becomes scarce enough that its price makes it an unacceptable source of energy.
The Emergence of the “Peak Oil” Concept
The defined concept of peak oil is often credited to Shell Oil geologist M. King Hubbert whose 1956 paper first presented it and coined the term in the context of a formal theory: “Peak oil occurs when the cost of oil extraction exceeds the price consumers will pay.”
Hubbert predicted that oil would peak around 1970. He was curiously prescient as the Arab Oil Embargo did create an energy crisis.
The First Peak…Sort of
Peak oil first seemed to emerge in 1973 with the implementation of an oil embargo by OPEC. The effects worldwide were immediate and photos of cars in long lines at gas stations filled the newspapers while inflation soared due to ever-rising oil prices…and then it passed.
The peak had nothing to do with exhausted oil supplies but an artificial price hike engineered by the OPEC oil cartel that demonstrated the panic and havoc that a threat to the world’s oil supply could represent.
The OPEC oil embargo motivated nations around the world to engage in the pursuit of alternative energy resources; the creation of the U.S. Strategic Oil Reserves and the higher cost of oil as a result of the embargo empowered something else.
The Rise of Unconventional Oil
As the price of oil went up, the ability to locate, drill, and extract oil from previously expensive sites and locations became profitable. The global economy paid a price but oil did not peak as new, unconventional oil sources became affordable due to the rising price of oil.
The fear instilled by the embargo also spurred investment in continued exploration and technology which pushed the threat of peak oil into the future. But how far into the future from the 1970s is the real question.
Second Peak?
The appearance of peak oil happened again in 1980 during the Iraq-Iran war when Saudi Arabia put restrictions on production to keep the price of oil high which was believed to lead to inflation and the spike in interest rates in the 1980s.
Once again, it had nothing to do with the availability of the world’s oil in the ground but a manipulation of the price of oil by Saudi Arabia.
And Then It Really Happened…Kind of
The economic recession of 2008 is often blamed on the junk bond market and the willingness of banks to finance sub-prime mortgages. Behind the scenes was the first genuine occurrence of peak oil when oil prices spiked because the world may have finally run out of spare oil capacity.
The response was swift and a combination of government intervention to prop up financial markets and the continued implementation of aggressive technologies like fracking to tap unconventional oil resources avoided a global depression.
Ironically, the high price of oil motivated the search for unconventional oil sources, delaying the appearance of a peak.
Formalizing the Peak Oil Concept
A report commissioned by the US Department of Energy titled Peaking of World Oil Production: Impacts, Mitigation and Risk Management defined peak oil as a definite and imminent threat. It was known as the Hirsch Report and stated:
“The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.”
The most significant caution in the Hirsch report was the time-frame required to pre-empt the threat of peak oil. “Must be initiated more than a decade in advance of peaking.”
That hasn’t happened other than continuing efforts to locate and pump oil from unconventional sources and various and continuing efforts to implement green energy solutions from solar, wind, geothermal, and tides. Unfortunately, even unconventional oil sources have a peak and green energy has only made up for 5% of the world’s energy needs to date.
Natural gas has been touted as an alternative, but the US sources of natural gas have already peaked and the only alternative is the very dangerous import and transport of liquefied natural gas.
Will Peak Oil Ever Really Happen?
Many continue to feel it already has. The simple fact of the matter is that oil doesn’t show up overnight. It was formed over millions of years as a result of the decay and compression of vegetation mostly from the Carboniferous period when plants and trees covered a tropical Earth.
It’s why they’re called “fossil fuels.” The coal, oil, and natural gas that resulted seemed limitless and fueled the industrial revolution. But it became very apparent over time that coal seams run out, oil wells run dry, and that natural gas will peak as well.
It May Already Be Too Late
- According to the International Energy Agency, conventional crude oil production peaked in 2006.
- A 2013 study concluded that peak oil “appears probable before 2030”, and that there was a “significant risk” that it would occur before 2020, and assumed that major investments in alternatives will occur before a crisis, without requiring major changes in the lifestyle of heavily oil-consuming nations.
- Predictions of future oil production made in 2007 and 2009 stated that the peak had already occurred.
- Another study stated that oil production was on the cusp of the peak, or that it would occur soon. These predictions proved false as world oil production rose and hit a new high in 2018, although most of this increase in supply in the United States comes from deposits of tight oil released by fracking, which is costlier to extract than conventional oil and requires substantial capital for investment.
- One futurist has predicted 2025 as a target date for peak oil.
- Geologist Dale Allen Pfeiffer contends that current population levels are unsustainable and that to achieve a sustainable economy and avert a peak oil disaster, the United States population would have to be reduced by at least one-third, and the world population by two-thirds.
And Here’s the Dilemma
The obvious solution to the threat of peak oil is to replace conventional oil sources with unconventional sources and to further supplement energy needs with the promise of new, green energy technologies. But in actual fact, they may be more of a promise than a solution.
Here are some quick definitions and some cold, hard facts.
Energy 101
According to French engineering professor Jean-Marc Jancovici, “Energy is what quantifies change. Nothing happens in the world without energy. And when the cost of the world’s biggest primary energy source – oil – begins to spike upward, the impacts are felt in every area of our lives.”
The areas he refers to are broad and far-reaching and satisfy the direct needs and demands of four basic functions in sectors that define our civilization
- Industrial
- Commercial
- Residential
- Transportation
All of those sectors will be affected, and we’ll get into detail on each, but of the 4 sectors, it’s the transportation sector that represents the largest growth in demand, and the sector that will demonstrate the most immediate impact.
Fuel for cars, trucks, planes, trains, and ships at sea currently consume 71% of the oil in the U.S. and 55% worldwide as documented in a report commissioned by the U.S. Department of Energy.
And it isn’t just about the cost of driving to work. The entire global supply chain is heavily dependent on the ability to transport goods and materials and any effect on the cost of transportation affects the cost of those goods and materials.
Alternative Energy 101
Against the background confusion and contrarian opinions surrounding peak oil is the ever-present promise of unconventional oil and green energy solutions. While geologists look at the cold science of peak oil, economists and politicians look at the obvious and simplistic solution of “find a way to find more or find a replacement.”
And technology has not disappointed, unless you look beyond the promises to the current reality of those alternatives.
Unconventional Oil
In the oil and gas industry, the term “unconventional oil” refers to crude oil that is obtained through methods other than traditional vertical well extraction. The hyperlinks to the subjects lead to the reports that support the information and conclusions.
Oil Shale
Oil shale is a common term for sedimentary rock such as shale or marl, containing kerogen, a waxy oil precursor. The shale or marl is typically mined, crushed, and processed, producing synthetic oil from the kerogen.
However, its net energy yield is much lower than conventional oil, so much so that estimates of the net energy yield of shale discoveries are considered extremely unreliable.
Oil Sands
Oil sands are sandstone deposits containing large amounts of very viscous, crude bitumen or extra-heavy crude oil that can be recovered by surface mining or by oil wells using steam injection or other techniques.
The recovery process requires advanced technology but is more efficient than that of oil shale. Unfortunately, extracting oil from oil sands and shales uses almost as much energy as it yields.
Coal Liquefaction
Coal liquefaction creates liquid hydrocarbons that are synthesized from the conversion of coal or natural gas. Shell has used these processes to recycle waste flare gas (usually burnt off at oil wells and refineries) into usable synthetic oil.
Another process that uses almost as much energy as it yields.
Thermal Depolymerization
Thermal Depolymerization could be used to manufacture fuel out of garbage, sewage, and agricultural waste. The cost of the process was originally quoted at $15 per barrel. In actual fact, the cost is $80 per barrel.
Natural Gas
Natural Gas is often touted as an oil replacement, but all indications are that the US has already passed the peak on natural gas and is now importing liquid natural gas (LNG) mostly from Algeria and Russia.
On the downside is that liquid natural gas is extremely dangerous and even The U.S. Coast Guard imposes a two-mile moving safety zone around each LNG tanker. It’s also a non-renewable resource and its peak is predicted in the near future.
Hydrogen
Hydrogen refinement using electrolysis to split water into hydrogen and oxygen when combined with carbon monoxide could be used to produce methanol which could then be converted into gasoline.
But hydrogen is limited and more than 90% is produced with a process from heat generated by burning natural gas, already in short supply, and no other mass production method seems feasible other than geothermal methods limited to volcanic regions like Iceland.
Fracking or Tight Oil
Fracking or Tight oil was typically classified as “unconventional” prior to about 2006, but more recent analyses began to consider it to be “conventional” as its extraction became more common. It is extracted from deposits of low-permeability rock, sometimes shale deposits but often other rock types, using hydraulic fracturing, or “fracking”.
However, fracking wells have shown to be depleted by 90 percent in just three years. The result is that fracking requires more and more wells just to keep the oil flowing. It’s estimated that fracking will produce oil for only a decade. But for all of the irrationality behind fracking, it effectively silenced concerns about peak oil.
The very existence of fracking and tar sands seemed to confirm the economists’ myth of infinite substitutability – that whenever a resource runs out, price increases will lead to an alternative being developed.
The International Energy Authority (IEA)'s report World Energy Outlook 2015 defined the situation surrounding the rise of unconventional or “tight” oil as “ultimately constrained by the rising costs of production, as operators deplete the ‘sweet spots' and move to less productive acreage”.
The IEA went on to predict that the output of US tight oil will reach “a plateau in the early-2020s”, before “starting a gradual decline”.
But What About Green Energy?
Solar power, wind power, geothermal power, even the power of the tides all fall in the category of clean or green energy. They’re referred to that way because the energy they produce does not result in the release of harmful hydrocarbons or greenhouse gases.
The good news is that they all work and all deliver clean green energy. The big question is whether or not they can fill the role of oil as a primary source of energy for the world. There are many indications that they cannot.
- Green energy currently fulfills 5% of the world’s energy needs. However, they have replaced nothing. The 5% has simply been added to the growing need for energy.
- Green energy works in concert with strict and consistent conservation efforts. Ask anyone who lives off the grid and depends on solar power for energy. Their energy use is driven by conservation from the use of low-wattage LED lighting to various other high-efficiency electrical devices. They have learned quickly that they have a finite and sometimes unreliable supply of stored and generated electricity.
- Green energy is variable. The sun rises and sets. The wind blows and doesn’t. Tides go in and eventually go out. Geo-thermal requires an area of volcanic activity and those places are few and far between.
- Green energy can’t power everything. The design of the vast majority of airplanes, ships, cars, trucks, heavy equipment, trains, and other equipment are all built around engines powered by liquid fuels derived from oil.
- Green energy is still small scale. A roof full of solar panels can do a pretty good job of powering a single-family home, but what about a large factory or a high rise apartment building?
- Green energy requires patience. If you’re running low on gas, you pull into the gas station and after a few minutes, you’re on your way. When your electric car runs low on power, you pull into a recharging station and wait a few hours for your car to recharge. And by the way, where does the power come from to recharge your battery at that recharging station?
- Green energy can have a downside. If you define clean, green energy by its lack of hydrocarbon emissions, you would have to put nuclear power in the category of green energy. But it’s far from clean when you consider the chronic problems with nuclear waste disposal and the cost of decommissioning nuclear power plants continues to be prohibitive.
- And then there’s hydroelectric power. Dams are an excellent source of green energy in that they emit no hydrocarbons to produce electricity. Like geothermal springs, they are limited geographically to areas where a dam can be constructed. They also are facing renewed infrastructure challenges as old dams require new investment for reinforcement and modernization.
Clean, green energy is a good idea that should continue to be explored, expanded, and used. But the fundamental issue when it comes to peak oil is whether or not green energy can replace oil as a primary source of global energy.
Until concerted conservation efforts are put into place and a good part of current transportation and industrial technologies are re-invented, green energy continues to be a wishful promise more than a viable global solution to peak oil.
It’s All About EROI
EROI stands for “Energy return on investment.” It’s a measure of how much it costs to “harvest” an energy source whether it be oil or solar and how much it returns as a result. Christopher Barnett is a noted futurist and his ideas were captured in a short video that explains the realities of non-conventional energy sources versus oil.
What becomes apparent is that non-conventional energy resources do exist and can be implemented, but they will never match the “cheap” energy that oil has provided us since the dawn of the industrial revolution.
The Supply and Demand Equation
Peak oil is all about the supply side of the energy industry. But the demand side is not only just as important but drives the need for a steady supply to meet the demand.
Supply and demand determine the price of all commodities. It postulates that all things being equal in a competitive marketplace, the price for a particular commodity will vary until it settles at a point where the quantity demanded at the current price will equal the quantity supplied at the current price resulting in economic equilibrium. But there’s a problem.
“All things being equal.” What’s currently driving the need for more oil on the supply side is the growing demand.
One way to manage the supply of anything is to decrease the demand. In the 1970s at the height of the OPEC oil embargo, oil conservation went into over-drive:
- Gas rationing was instituted to decrease demand.
- The national speed limit was reduced to a strict 55 miles per hour because it was shown to use less fuel than vehicles exceeding that speed.
- Carpooling was encouraged and rewarded allowing cars with more than one passenger to travel exclusively in the higher speed, left lanes.
- Programs marketed the importance of reducing the use of electricity, water, and encouraging public transportation.
- Tax deductions were offered for energy-saving efforts related to construction, appliances, and the purchase of fuel-efficient vehicles.
- The high cost of gas alone discouraged unnecessary vehicle use.
All of the efforts were designed to conserve energy and reduce the demand side of the equation. And it worked. However, once the supply of oil came back to previous volumes, many of the policies faded. The 55 mph speed limit is rare, SUVs are back running at 10 miles per gallon and the demand keeps growing.
We’re using it up at a faster and faster pace and if many indications are accurate, we’re at the peak and have done little in the last decade to truly prepare.
The Hirsch/US DOE Report concludes that “without timely mitigation, world supply/demand balance will be achieved through massive demand destruction (shortages), accompanied by huge oil price increases, both of which would create a long period of significant economic hardship worldwide.”
And Now What?
If one thing is apparent it’s that trying to solve the problem of peak oil by boosting the supply side has not demonstrated a true and promising solution. That leaves the demand side to address the challenge. That means significantly improved efforts at conservation and reduction. So far there seem to be few initiatives pursuing that path.
The sobering conclusion is that growing demand has taken peak oil beyond a prediction. It appears to have happened and the impacts have the potential to be widespread and significant. It is going to force a radical change in lifestyles, work styles, and put a tremendous strain on society and global economies for 10 to 20 years given the current lack of preparation.
The changes to our quality of life will be both abrupt and gradual as the reality of living in a world without cheap oil becomes a fact of everyday life. Here are some possibilities on what’s to come for the 4 key sectors.
1. Industrial
- Some industries will flourish, particularly in areas related to digital technology and digital communication and entertainment. Much of this will be related to people working remotely to avoid the prohibitive costs of commuting. It will also free up many of the energy costs that industries endure to maintain and support office buildings for large workforces.
- Other industries will be forced to scale back on overall manufacturing to reduce costs and prices of products as we move from a luxury economy to a commodity economy providing basic goods and services. This is also due to the fact that any industry manufacturing a physical product will face the increased costs of shipping and distribution. This will have a significant impact on the supply chain industry as well.
- Some industries will cease to exist or be greatly diminished, particularly those businesses that specialize in the production of products made from oil including fertilizers, detergents, solvents, adhesives, plastic product casings, plastic bags and containers, nylon clothing, many medicines, recreational boats, and even the asphalt on our roads.
- Many industries will migrate to cities or small urban villages to be close to their workforce if their employees cannot work remotely.
- Agriculture will be upended since supplies of oil and gas are essential to modern agriculture techniques, a fall in global oil supplies could cause spiking food prices and unprecedented famine in the coming decades.
2. Commercial
- Commercial operations that may cease to exist or become significantly smaller include vacation resorts and destinations, and the hospitality industry that serves them as people travel less and less.
- Others could be revitalized including shopping malls and superstores where one-stop shopping becomes a necessity rather than a convenience.
- This could motivate many retailers to become joint ventures in an effort to offer a new and expanded range of products and services under one roof in one location.
- It will force many small businesses to reinvent their fundamental approach as they too consider joint ventures and location consolidation in service markets. These marketplaces will offer a range of specialized products and services in one location as any free-standing small business in a remote location becomes an undesirable destination.
- Many commercial outlets will turn to the discount superstore business model now seen at Sam’s Club and Costco as people look for consolidation of services at discounted pricing at one location, and pursue a stockpiling mindset about purchases.
- The “just-in-time” supply and demand model will cease as commercial operations become mini-warehouses with large inventories to offset the spiking costs of frequent shipping required of “just-in-time” manufacturing.
3. Residential
- Rural areas will become more attractive as a self-reliant option requiring less travel, although employment will be largely dependent on the ability to work remotely or locally. In addition, locally sourced food will see a renewal as the costs of shipping food from other states and countries becomes prohibitive.
- Housing in cities will actually increase as the ability to travel to work, shop, and pursue other lifestyle choices without use or at most, limited use of a vehicle will be easier. How well cities respond to an influx of population will create continuing challenges related to public transportation, health, safety, and crime. Food coops and local food networks will arise as food costs increase and certain items simply become unavailable. Many areas of cities will be designated car-free.
- In a TED talk by sociologist James Howard Kunstler titled The Ghastly Tragedy of the Suburbs, he defines the suburbs as the slums of the future as people flee to cities and rural areas. This is largely due to the fact that the suburbs were designed around the personal ownership and use of an automobile which may become a luxury few can afford.
- Replacing the suburbs will be urban villages resembling some of the towns of the late 19th and early 20th century built around a single industry like Pullman in Illinois where everyone lived in the town and could walk to work.
- Fuel prices are directly proportional to food prices. Subsequently, the rise in fuel costs will also result in higher food costs. There is also a possibility that certain towns whose economies revolve around crude oil production will become ghost towns.
- Rising oil prices, if they occur, would also affect the cost of heating, and electricity.
- The emergence of permaculture as a living standard for communities defined by:
- Care of the Earth: Provision for all life systems to continue and multiply.
- Care of people: Provision for people to access those resources necessary for their existence.
- Setting limits to population and to consumption. By governing our own needs, we can set resources aside to further the above principles.
4. Transportation
- There will be a proliferation of non-petroleum vehicles such as electric cars, battery electric vehicles, transit-oriented development, bicycles, new trains, and a new pedestrianism.
- Large inland lakes and waterways will see an increase in boat and barge traffic as waterways become the new highways for a struggling supply chain.
- The airline industry will become a shadow of its previous place in transportation as air travel becomes an expensive luxury affordable to few and too costly for the simple transport of basic goods.
- Travel in any vehicle will become a planned and infrequent decision. In some respects, it may resemble the 19th-century tradition of hitching the horses to the wagon for the once a week trip into town.
Impact on the World as We Know it
Civilization has endured disasters from its beginnings. It has always survived for the simple reason that every disaster has a beginning, middle, and end. Even pandemics end, eventually.
With peak oil, there is no end. Once it happens, the decline continues and the only response is going to be a necessary reinvention of how everything operates and functions.
Will it result in war? That’s quite possible. According to futurist George Monbiot, “Life is a struggle against entropy. Entropy can be roughly defined as the dispersal of energy. As soon as a system – whether an organism or an economy – runs out of energy, it starts to disintegrate. Its survival depends on seizing new sources of fuel.”
For now, we’re in the midst of a global pandemic, but there appears to be the promise of a vaccine by the summer of 2021 that should mark the gradual end of COVID-19. Unfortunately, the many changes in our lives and lifestyles we have seen in the past year are only the tip of the iceberg compared to the massive and permanent effects of peak oil.
How well we adapt and survive remains to be seen.
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