From Daily Kos
This is a synopsis of the peak oil concept and the data/science behind it. It's very well written, and it's not screechy. I hope you take the time to read it and understand this likely very important possibility.
The Coming Oil Crisis
by Land of Lincoln Dem
Tue Jul 18, 2006 at 07:47:17 PM PDT
I know, I know, it's much easier to just ignore this problem. But life in the 21st century is never short on reminders that we exist in a world of ever-increasing energy needs in which our economy's growth and even its most basic vitality is almost directly tied to our access to a few precious commodities. Petroleum is necessary to continue our current lifestyle and yet our ability to obtain it in the quantities we need becomes less and less certain with each passing day. While there are a number of environmental and climate-related issues tied to the use of this fuel, I won't attempt to address those problems here and they must be reserved for another diary. This entry will be limited to the potential availability of petroleum sources in the near future as well as some of the geopolitical problems stemming from this possible shortage in the long run.
So join me on the flip side for a little history, a little analysis and a lot of "wonk" to find out just what kind of mess we're in...
* Land of Lincoln Dem's diary :: ::
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Normally, I'm content to be a lurker on the site. Occasionally I'll post comments but for the most part I just enjoy having so much information on so many topics all in one place. Its like my very own condensed, Reader's Digest index of all human knowledge. But today I've decided to jump into the pool (don't worry, I won't pee in it) and share some of my knowledge on the global petroleum situation, because I've had the pleasure of reading several books and articles on the subject lately and feel I can contribute something to the community. Jerome a Paris is usually right on the mark with his diaries on oil and while I don't want to step on any toes, I'll give this a shot. (Note: this post ended up being rather epic in length so read ahead at your own risk)
It would not be an overstatement to describe oil as the lifeblood of our economy. In fact, it is almost impossible for the average person to imagine life without it. From the cars, trains and buses we take to work and school to the airplanes and trucks that carry goods from distant markets to our local store shelves it is essential to the post-industrialized lifestyle. It provides 40% of the world's total energy needs and more than 90% of the energy we need for transportation comes from oil. But oil is a finite resource. There is only so much of it in the world and when it runs out there is no way for us to acquire more of it. However, severe complications will arise long before we run the earth dry of oil.
For those unfamiliar, M. King Hubbert was a brilliant geologist working for the Shell Research lab in the 1950's and 1960's. Through his hard work and research he predicted in 1969 that worldwide oil production would peak around the year 2000. He didn't mean by any stretch of the imagination that we would run out of oil by that date. But he showed that production, when graphed, looked basically like a standard bell curve. In essence, he demonstrated that once approximately half the supply of earth's oil had been pumped, production would be at as high a level as it would ever be. Skeptics have noted that you can never truly know how much oil there ever was. And people probably would have long ago dismissed his calculations as the ranting of a pessimistic madman except for the trivial matter that he accurately predicted in 1956 that oil production in the United States would peak in the early 1970's.
Even today most people are unfamiliar with both Hubbert and his predictions even though his work is probably more important to us now that ever before. The question is not if production will one day peak but when. It is a forgone conclusion, even to those optimists who believe that we have decades until the fun stops, that one day the worldwide production of oil will reach a peak output and then begin to uncontrollably decline. Many believe that once we reach the peak it will be far too late to do anything. Without a plan in place to transition from oil to another fuel that will satisfy our transportation energy needs we run the risk of an economic collapse from a lack of foresight.
The misleading perception associated with "Hubbert's Peak" is the image evoked by the gentle downward slope of a bell curve. But the landing connected with a decline will be anything but soft. It is theoretically true that if a peak occurred this year - not entirely out of the question according to so some - a Hubbert-style graph shows that it would take about 15 years for production to drop 10%. But that is assuming worldwide growth and demand remain constant during that period of time. China and India's markets are developing exponentially and their rate of industrialization is pushing demand for oil higher everyday. And that is to say nothing about the growing U.S. population and ever-expanding economy complete with SUVs that rival the size of some houses.
If we were faced today with a peak in oil production there is little chance of limiting consumption in the short-term. We are simply too reliant on oil to give it up cold turkey. The higher prices linked to shrinking supplies would send oil companies scurrying to squeeze as much petroleum as possible from the earth in as short a period as possible. The extensive search for oil would be analogous to what was seen in the United States after domestic production topped out in 1970. A drilling boom would ensue in an attempt to satisfy the unquenchable demand. For a while they might even be successful in supplying what is needed to keep everything humming along. Instead of a peak in production with an anticipated decline there would be a plateau of sorts. This would ease fears and return things (relatively) to normal. The news cycle would end, coverage would shift to the next celebrity couple's baby news and people would be relieved to know that we solved the problem by simply drilling more wells.
There remains, however, the pesky matter of oil still being a finite resource. By changing the production curve we will have merely delayed the inevitable and accelerated the ensuing decline when new drilling begins to taper off and can no longer support current demand (assuming that it could meet that demand in the first place). The plateau will work temporarily but as one geologist put it, "the edge of a plateau looks a lot like a cliff." It is entirely possible that we are currently on such a plateau and we don't even realize it. In a few years we may look in the rear-view mirror and see that we have driven right off the edge without even knowing it, at which time it will be too late to do anything.
So if the experts believe that we are on the verge of reaching our peak for worldwide production capability (or if we have already hit it) what should be made of all the hype surrounding the "proven reserves" of so many nations, most notably those in the Middle East? Part of the problem is that for all its importance in today's world very few are privileged enough to be an insider in the oil industry with access to information regarding the availability of this valued product.
Matthew Simmons is one of those lucky few. He is a Houston-based investment banker who specializes in the energy industry. If there is anyone who has a desire to see things continue down the road of "business as usual" in the oil industry it would be someone who makes a living off having a financial interest in the industry. But Simmons has reached conclusions that all Americans should be afraid of. His fascinating book, Twilight in the Desert, details how little the public and even well informed insiders know about oil production. His work focuses on the secrecy of Saudi Arabia, the world's leading producer of oil, and how this secrecy has led to a flawed feeling of complacency. While he has his critics, Simmons is not some partisan political hack looking to score cheap points.
In 1979, a report released by the United States Senate showed that officials from Aramco - Saudi Arabia's national oil company - estimated their reserves to be in the neighborhood of 110 billion barrels of oil. Reserves are essentially oil fields that have been discovered but not tapped. These figures are difficult to approximate and sometimes on the conservative side so it didn't come as a huge shock when the Saudis revised the number to 150 billion barrels later that year. However, many observers were left scratching their heads when the numbers were further revised to 250 billion barrels of oil in reserve in 1988 even though no significant discoveries had been disclosed during that time. To this day, more than 17 years after those revisions, the official number stands at over 250 billion barrels of oil in "proven" reserves even though, again, no discoveries have been released to support that kind of increase over the 1979 figures. Also, Saudi Arabia has pumped nearly 50 billion barrels of oil out of the ground since 1988 while reserves have remained unchanged. They are unwilling to open any of their fields to independent verification and this lack of transparency is what worries many experts. What could they be hiding? Is there an incentive for them to lie or deceive?
Historically, the only time that reserve estimates are updated is if new discoveries are confirmed or new technology would allow a county or company to squeeze more oil out of existing fields. However, neither of these situations applied to Saudi Arabia or virtually any other oil producer who revised estimates during the 80's. The motivation for these adjustments was purely economic. In 1985 OPEC (Organization of Petroleum Exporting Counties) decreed that the higher one's stated reserves were the more oil you would be allowed to export. So while OPEC members claimed to be correcting for past mistakes they were really seeking higher revenue streams. This accounts for why the six OPEC member nations collectively doubled their "reserves" virtually overnight to more than 600 billion barrels and have kept them there ever since.
Even if we set aside the dire predictions of an imminent production peak and assume that we can continue down the current path indefinitely there are a number of short-term issues that have to be addressed. The principal nuisance is that even though demand will be increasing at least incrementally in the near future it appears production will not be able to meet that need. As mentioned before, nations other than our own have developed a growing addition to oil. If we could just pump and refine more of it we might be fine. But worldwide there is no longer any surplus production capacity. By 1997 Saudi Arabia was the last remaining nation with the luxury of holding back supply and even the great oil king had to admit the inescapable fact that by the Spring of 2003 they were maxed out themselves.
Since that time the price for a barrel of oil has gradually increased from about $28 to the nearly $80 we see today! The slightest hitch in production, or sometimes just the rumor of a potential hitch, can send the price fluctuating wildly. And of course, that's not even taking into account the latest turmoil in the Middle East. According to one observer, "Volatility has become the new market reality." It has become accepted fact that prices will be unstable and we all have to live with it. But many can't afford such a situation. Increasingly we are seeing more and more people falling into "energy poverty" which, in the 21st century, may be the greatest determining factor between the haves and have-nots.
Not everyone is concerned with the present state of affairs and how it may jeopardize our future. There are a growing number of people who feel that free market forces will help correct any shortcomings stemming from the oil industry. They are convinced that the problem is less geological than it is financial. Investment is merely in a lag behind the large growth in demand from the last decade or so.
There is a serious flaw, though, in this thinking. Investment rarely lags this far behind record profits, which the industry has been experiencing for some time. We should be seeing an explosion of capital being infused in an attempt to boost production and refining capability. Instead, we are seeing old oil tankers being retired quicker than the new ones are coming online and only a minimal increase in exploration budgets for the largest oil companies and producer nations.
So why would investment not keep up with demand? Is it possible that investors have access to hard evidence that the rest of public does not? Perhaps, but it is just as likely that they are drawing their conclusions from easily obtainable information and have decided that a peak in production is likely imminent. This would prevent them from securing a reasonable return on their investment, which is not good business sense. While it may be speculation to think investors anticipate a peak, it is an economic reality that investments are indiscriminate. If they thought there was money to be made in the future oil game there would undoubtedly be more investing than we are currently seeing.
There is another problem with the logic of the free market supporters and it has to do with their theoretical solution to the crisis. Alan Greenspan is one of the leaders of this philosophy and his explanation for what will happen in the face of higher oil prices is remarkably simple. He - and many others - argue that government intervention is not only unnecessary but undesirable. The market, through higher prices, will encourage the changes that are needed and we will gradually ease off of oil and onto something more stable and abundant. Government would only get in the way.
Not being an economist, this writer is reluctant to try and find fault in the economic theory proposed by Mr. Greenspan. However, there is a critical error with this basic premise that can get lost in the particulars. This viewpoint only works under the assumption of stable, established price levels. As we have seen recently oil is far too fickle a commodity to play along with this assertion. The past has also shown this to be an unlikely scenario. History tells us that conversions to new energy sources have been somewhat cumbersome. "The leaps from wood to coal and from coal to oil caused economic disruption and political uncertainty," according to Paul Roberts. "And these were fairly slow-motion transitions, occurring over several decades." There is simply no reason to believe that a current disaster could be handled smoothly by capitalism. The market is inherently too static to evolve at the rate in which we would need it to. The only solution is some form of government commitment, and even immediate action may be too late.
There is another variable in this equation that has not been mentioned directly but was alluded to earlier. The wildcard in all of this may be population and its overall rate of growth. In 1979 we reached the peak for per capita oil production, meaning that since then population has been growing faster than we have been able to find and pump oil. India and China were referenced to before as examples of newly industrializing countries that will only increase their oil needs. Within a generation or two their economies may rival or even exceed that of the United States' and it is not implausible to think they would consider using this increased influence to take actions that would be detrimental to our interests.
The bottom line is that soon there will be - or already are - too many people competing for too few resources. For many, oil has become as valuable to survival as water with no discernable end in sight. Our impromptu experiment to determine the earth's carrying capacity will not have a happy ending. Worldwide population control is often an unpleasant and no doubt controversial topic but it pales in comparison to the kind of ugliness Mother Nature would wreak upon us if this unchecked growth were allowed to continue. Famines, suffering and international volatility will only further destabilize the geopolitical balance of the world.
If indeed all of the evidence pointing toward the peak of oil production turns out to be true, what comes next? A worst-case scenario would have supplies falling fast enough to cause chaos and disruption the likes of few alive have ever seen. Panic would ensue as mankind tries to figure out what the new definition of "sustainable" is. Resource and energy wars would break out as the haves make a last ditch attempt to continue their lifestyle at the expense of the have-nots. But, of course, it doesn't have to happen that way. It may end up that oil supplies are adequate enough to delay "Hubbert's Peak" for a decade or more. In that case we have an unprecedented opportunity to reshape our society with the time we have left. The realization that we are on a collision course with fate has begun to sink in but people at all levels of society need to be better informed. Through sustained, determined efforts we may one day break free from the shackles of our hydrocarbon dependence. In order for that to happen, though, we all need to understand the implications of what will occur if we continue life as we know it.
What will the energy economy of the future look like if it does not include oil? The United States currently consumes more than 20 million barrels of oil every day out of a worldwide production of 85 million barrels. More than half of our current appetite is imported and that amount jumps to nearly three-fourths being imported in 20 years if demand grows as expected. Replacing such amounts means either curbing our energy use or finding new sources of energy to exploit.
Neither option is very attractive to most Americans. The reality of the situation will, of course, dictate that a patchwork of energy alternatives will be required to fill the colossal role of oil in our world. And while conservation will not solve any of these problems that have been mentioned it, too, will be necessary in making the transition more bearable.
As we peer over the cliff into the endless abyss of a post-oil world we are sure to be faced with difficult questions. The uncertainty surrounding our cherished way of life will be difficult to contemplate. And it will be even more difficult to give up our lifestyle of excess. But the fact remains that we have been living on borrowed time for far too long and the consequences are stalking us relentlessly. Kenneth E. Boulding once stated:
Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.
We must embrace a sense of conservation with sincerity and shake off the mindset of unconstrained progress. This isn't a battle that can be won with weapons and military might (though many leaders in our government will undoubtedly try). We will only prevail when our society remembers the noble foundations of deferred gratification, sacrifice, and sustained national effort that once drove this great nation.
Here are some of the books and articles that I found the most interesting during my formal and informal research:
Twilight in the Desert by Matthew Simmons
Beyond Oil: The View from Hubbert's Peak by Kenneth Deffeyes
The End of Oil: On the Edge of a Perilous New World by Paul Roberts
National Geographic's article The End of Cheap Oil
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