James Hamilton on the Econobrowser blog recently offered a post titled, "The Death of Peak Oil." It pivots off an article by Colin Sullivan wondering if it has "gone the way of the Flat Earth Society." Sullivan continues, "Those behind the theory appear to have been dead wrong, at least in terms of when the peak would hit, having not anticipated the rapid shift in technology that led to exploding oil and natural gas production in new plays and areas long since dismissed as dried up."
Hamilton does a capable job of dismantling Sullivan. Comments from the expert readership of the Oil Drum do excellent mop-up. Still, the exchange seemed an opportune time to re-examine where we stand on several fronts amid what I had termed the Great Disruption. This blog shouldn't be a church. It is not a prisoner of any closed-loop ideology. I don't have all the answers. We should always remember the exchange John Maynard Keynes had with a man who demanded to know why his position on a certain issue had shifted. Said Keynes, "When the facts change, I change my mind. What do you do, sir?"
After all, no less an authority figure than the President of the United States has assured us that America has a one-hundred-year supply of natural gas and his administration is fast-tracking all manner of fossil-fuel production. Approval of the Keystone XL pipeline to bring tar-sands oil from Alberta to the refineries of the Gulf Coast seems a given. The housing industry is coming back, even in the overbuilt suburbs of places such as Phoenix and California's "Inland Empire." The recession slowed "job sprawl," but hardly stopped, much less reversed it. New freeways are being built. American life is going on much as before 2008. Could it be that all the notions of a "great reset" in the wake of the crash were magical thinking?
I have been generally hesitant to use the term "peak oil," because it is easily misunderstood and the oil industry is highly complex. Still, peak is not mere theory: It has been documented for oilfields and countries. Simply stated, it means that half of the resource — and usually the easy half — has been extracted, refined and burned off. The lower 48 United States hit peak in the early 1970s, a significant factor in the energy shocks of that decade. The United States never stopped being an oil-producing country, even in the lower-48. It's that our consumption kept rising faster than production. By 2006, evidence was emerging that the world was hitting peak in conventional production. Among the hints beyond price: Oil-exporting countries were holding back petroleum for domestic uses and many of the world's "elephant fields" were in decline, while few new large fields were being discovered. Meanwhile, developing countries were industrializing and seeking an America-style car-based "lifestyle," raising demand significantly.
I preferred the term "higher-cost energy future." And this has turned out to be accurate. Oil prices never collapsed commensurate with the degree of the financial crisis in 2008-2009, and they recovered quickly. This was another clue that the energy situation had indeed reached a profound turning point. "Fracking" — horizontal fracturing — was not a surprising response. Covering the oil industry years ago, I sat barely awake through many presentations on advanced technology that could get at trapped oil. But it depended on today's higher prices. It's telling that amid very slow growth in the world economy, crude is around $88 a barrel (and this is after last week's selloff because of worries over China's growth rate). Not $40. Not $20. So this is not price behavior suggesting abundance. Indeed, production by the major oil companies is down 25 percent since 2004. Thirty billion dollars has failed to find a new elephant field in the Caspian Sea. It should make us skeptical of the promised bounty of oil in the South China Sea that is causing Beijing to play the jingo.
Conventional oil, especially the easy to get and cheap to refine kind, is at or past peak. Other production methods are coming on line, such as shale and tar sands (and deep offshore drilling). But none will be cheap. Instead, oil prices are a ceiling the economy keeps banging into — and when they fall, it's because the growth outlook has dimmed. And it is uncertain if new supplies can keep up with demand. Natural gas is a somewhat different animal, but it doesn't power cars and it faces very high depletion rates, the latter making the "hundred-year supply" boast fanciful.
Meanwhile, the political power of the fossil-fuel industry is enormous. It receives hundreds of billions of dollars in subsidies while its externalities, such as the extreme pollution of Canadian tar sands or the fracking chemicals, are not priced in. As long as these distortions remain, as long as there is no carbon tax, there will be little market incentive for alternatives. Nor will we see government leadership for an "energy" Manhattan Project.
One last point should always guide our understanding of this issue: How much units of traditional fossil-fuel are required to produce a unit of new energy, whether from fracking, tar sands, solar panels or electric cars? Often, it's a losing proposition. But this, too, is one of those things that isn't closely measured. Nor is it fashionable to ask such questions.
As I examine the evidence, the magical thinking is in the camp that would have us believe that nothing has changed, that we have an endless supply of fossil fuels at reasonable prices. And if we don't, it's some speculators' plot to keep Americans from their god-given right to drive alone a hundred miles a day powered by cheap gasoline.
Maybe I'm wrong.
But even if I am, the result will cook the planet through climate change. We're doing it already, passing the point of no return, with this great leap to find, frack and burn every hydrocarbon on the planet, including exporting coal to China rather than exporting the sustainable technology we might have developed.
It's fascinating how the "peak oil is dead, we've got plenty of oil!" meme is always divorced from the settled science that climate change is real, human-caused and getting worse faster than what had been feared just a few years ago.
We didn't use the recent crisis to retrofit suburbia with walkable town centers and abundant transit. High-speed rail didn't get built in America (even though it is abuilding around the world, even in the austere United Kingdom). We haven't reverted to a localized, scalable economy, much less been forced into individual farming. The Too Big to Fail Banks are bigger than ever. Phoenix is still Phoenix.
But the Great Disruption is real: Climate change, a higher-cost energy future, the stresses of 7 billion people on the planet, economic and social discontinuity — and the geopolitical instability that results. How this discontinuity plays out is uncertain. Political power and social custom being what they are, we will spend vast amounts to sustain the unsustainable. Even the word "sustainable" has become a punchline, a marketing gimmick. That's how deep our denial runs.
Read the Rogue Climate Change/Energy page for some of the best journalism on these topics.