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Reasons Not To Be Concerned About Peak Oil (with
Refutations)
Here are the reasons
we have read why the peak oil alarmists have it all
wrong and that peak oil isn't a significant concern. In each case, we've
stated the argument succinctly and then set forth our refutation of it.
We've heard all this before.
The argument. From
the beginning of the oil age right up until today, alarmists have
complained about the "world's dwindling oil supply." this isn't
the first time people have complained that we're "running out of oil."
It's more like the fifth time. Yet here we are,
continuing to enjoy the wonderful benefits of an oil economy. It's time
for the alarmists to admit they're wrong. The sky hasn't fallen yet, and
it's not going to fall. Let's move on.
Refutation. There's
something to this. There has been a persistent drumbeat of
pessimism, perhaps even alarmist pessimism, about the world's oil supply,
and it's safe to conclude in hindsight that all those shrill warnings
(that turned out to be false to one degree or another) have made it more
difficult for people to believe cheap oil will ever end. The fact that the
boy cried wolf and the wolf didn't come makes the boy less credible;
however, even in the fable, the wolf did come after all.
No one we consider credible is saying we're about to "run out of oil."
That's not the point. What we have heard, and what we believe,
is that we are about to exhaust the supply of cheap oil, that the
world's oil extraction rate is about to begin declining, and that this
declining supply will combine with a growing world demand to drive up the
price of oil to levels at which it will disrupt the world economy.
There is plenty of oil still available.
The argument. The US
Geological Survey has estimated that the world has consumed only 1/3 of a
total of 3 trillion barrels of conventional oil, so by implication there's
still more than enough oil to last as long as we need it. Present high oil
prices are merely a temporary phenomenon that will disappear when
increased production comes on line.
The state-owned Saudi Aramco makes an even stronger statement, that the
total conventional oil reserves are 5.7 trillion barrels, meaning the
world has produced less than 1/5 of the total. That means there's enough
oil still in the ground to last more than 100 years. Pulitzer Prize winner
Daniel Yergin
says to expect the world's oil supply to
increase by 16 million barrels per day between 2004 and 2010. So by
2010 we should expect the world oil extraction rate to be about 101
million barrels of oil per day.
Refutation.
The size and quality of existing oil reserves
is maddeningly difficult to ascertain, because most of the information
needed is in the hands of key producers who operate behind a thick veil of
secrecy. The sad reality is that when it comes to this most strategic of
questions confronting our world economy, nobody really knows.
Read more about world oil reserves.
And in one sense, the size of reserves isn't nearly so relevant as the
rate at which we can extract them. Let's say you have a 55-gallon drum of
beer, but you're forced to drink it through a straw with the diameter of a
hypodermic needle. You may derive satisfaction from knowing you own all
that beer, but you really can't drink much at a time because there's such
a limit on your rate of extraction. That's where we are now with
petroleum.
If you want an easy and quick way to gauge the accuracy of the peak oil
paradigm, Yergin's prediction is a great test. Yergin is a respected
and well-informed intellect. He made that statement in July of 2005, and so far,
at least technically, it's too soon to tell whether he's right. If the world extraction rate increases
above 90 million barrels per day within a few years, you will know that
the peak oil alarmists have jumped the gun and that the boy has
cried wolf yet again. If the world extraction rate remains stubbornly
below 90 million barrels per day or actually begins to fall, you'll know
the peak oil alarmists were on to something, that we humans have our work
cut out for us, and that we better get busy.
 Even though it's too soon to tell for certain whether Yergin's
prediction is correct, the early results indicate that he is wrong.
According to the Energy Information Administration, world oil output was
84.2 million barrels per day in October of 2004. After a period of steady
price increases and steadily increasing world demand for petroleum, world
oil output in April, 2007 was . . . 84.3 million barrels per day. In no
month during this entire 31-month period did the world oil output deviate
more than 1.5% from the 84.2 million barrel figure. It is difficult to
envision a scenario in which the world oil supply, having flat-lined for
31 months, will then increase within the next 32 months by nearly 19%.
November 2006 update. CERA, while saying it continues to
"debunk" the peak oil theory (peak oil is a "theory" in the same sense
that gravity is a "theory"), has published the graphic to the left
forecasting the world's oil production rate. Looks a lot like a peak to
us; how about to you?
At this point, CERA seems to have admitted that the world's oil supply
will peak and decline. The differences now between CERA and people like us
are around our perceptions and arguments about (a) when the peak will
arrive, (b) how fast the decline will occur, and (c) how it will change
our lives. So far, we're right and they're wrong about when the peak will
arrive; it's too soon to tell who's going to be right about the rate of
decline or the change it will make in our lives.
And whenever you read about the world's "vast remaining oil supply,"
remember a simple formula: ERoEI.
There's plenty of oil out there, but the government won't let the oil
companies drill for it.
The argument. There's
plenty of oil in the ground, like in the ANWR and the Gulf of Mexico. The
problem is that the environmentalists, nazis, really, have taken over the
government bureaucracy and so restricted exploration and development that no one can
drill for it and get to it. When we get serious about oil exploration, the
pendulum will swing back, we'll relax the environmental restrictions, and
we'll go get the oil we need. T. Boone Pickens says the big problem is the
government's interference with oil drilling.
Refutation.
You're certainly right in one sense. There is plenty of oil still
out there. Remember that the whole idea of peak oil is that it corresponds
to the point at which roughly half the resource is still untapped. We
humans have used roughly a trillion barrels of oil, and there's roughly a trillion
barrels still "out there." The problem is that, by and large, we've used
the oil that is easy to find, in large pools, close to the surface, and
low in sulfur, leaving the half that's deeper, dirtier, more inaccessible,
and in smaller pools that may not be economical to tap.
Let's take a closer look at the ANWR, because it gets a lot of press. The U.S. uses about 21 million
barrels of oil per day, or about 7.5 billion barrels per year. You may
have heard that the ANWR contains 10.4 billion barrels of oil, which would
be about 16 months' supply. That wouldn't solve the problem, but it would
sure help. The problem is that this 10.4 billion barrel figure is the
"technically recoverable" figure, the amount of oil that could be
recovered if price were no object. The figure that matters is the amount
of "economically recoverable" oil, the portion worth going
after, which is 2.6 billion barrels of oil.
That 2.6 billion barrels was set based on $50 per barrel, so it's probably
a tad low. Maybe the economically recoverable oil at $100 per barrel is
more like 3.5 billion barrels. That's about a five and a half months'' supply. That's it. We frankly expect that we
will eventually decide to drill for oil in the ANWR, and we sincerely hope
that when we do, we will find a generous quantity of oil there. Our hope
and
our plea, (and being Christians, our prayer) is that we wait many more years to do it.
The longer we wait to mine the oil in the ANWR, the more we will sip it by
the precious spoonful over a period of years or decades rather than
guzzling it by the Hummer-ful in a matter of months.
And we don't know where you heard this from T. Boone Pickens. Maybe
years ago? This
transcript of his interview with a reporter in 2007 makes it clear
that he now thinks the biggest oil fields have already been found, including
the Gulf of Mexico and deepwater wells, that the ANWR isn't going to make a big difference, and
that we need to get busy exploring alternative energy sources. And by the
way, Pickens says oil peaked globally in 2006.
 We humans are ingenious; somebody will figure out a way to make oil
exploration and extraction more efficient.
The argument. The
oil's there; we just need to build a better mousetrap to go find it.
That's what we do best. And our efforts are already bearing fruit. For
example,
Enhanced Oil Recovery has allowed us to extend the life of wells we
thought would be bone dry by now.
Refutation.
Yes, oil exploration and extraction are becoming more efficient. We drill
fewer dry holes today than in the early days of oil exploration, and we
can inject gas and water into wells to force the last drops of oil up so
we can recover them. The primary utility of these processes, however, is
near the end of a well's useful life, what we can loosely call "squeezing
the tail." They won't affect the arrival of the well's extraction peak or
the world extraction peak, Remember, that's a function of geology. Yes, we
will see continued improvements in technology and efficiency. But those
improvements will be small and on the margins, and they're already
reflected in the reserve calculations.
Here's a little factoid that got our attention, from the
Energy Watch report on
oil peaking, published in October of 2007: during the 1960s, the
average "new field wildcat" strike (that's a oil discovery in a new,
previously untapped area) yielded 527 million barrels of oil. By the year
2000, that figure had declined to 20 million barrels. Decade by decade,
year by year, well by well, we're having to work harder to get less and
less oil. No, technology won't materially affect the supply of
conventional oil.
The law of supply and demand cannot be repealed; as the price of oil
increases, we will go find more.
The argument. The
peak oil alarmists would be right except for one thing; they act as if
there is no law of supply and demand. Oil production is price sensitive,
and so is demand for oil. As the price goes up for oil, we will discover
and produce more, and people will buy less. There's no crisis; the markets
are simply doing their job.
Refutation.
First, we don't shy away from the term. We believe oil
extraction is at or near peak, We are indeed alarmed about it, and we believe
you should be alarmed as well, so we're not embarrassed to be labeled "peak oil alarmists."
No one we consider credible believes that the
law of supply and demand is not applicable to the extraction and
consumption of oil, and to argue that anyone does is to erect a straw man in
hopes of avoiding the real questions with which we must wrestle together.
The price of oil is at about $60 per barrel as we write this, and the incentive is there for oil producers to knock the rust
off their rigs and get busy. But with the exception of isolated patches in
the middle east and elsewhere, there's remarkably little new exploration
going on. One can guess at the reason, but we believe it's because the
price of oil still isn't high enough to encourage producers to undertake what they know from experience is
likely to be a futile search. And yes, maybe when oil is $120 per barrel,
they will have that incentive, but history tells us the oil they find will
be the kind that won't make a huge difference in the overall world oil supply,
the kind that is deeper, dirtier, in less hospitable climates, and more
costly to extract. And at $120 per barrel, we will already be
seeing the kinds of disruptions in the economy that have us peak oil
alarmists worried.
And while we're talking about supply and demand,
let's take a quick look at the demand side. The price of oil has roughly
tripled during the last 7-8 years (from $20 or so per barrel to $60 as we write this), but the world's demand for petroleum continues to increase.
Sure, some consumers may be taking steps to reduce their energy use, but
what matters is the world's consumption of oil, which shows every sign
of continuing to grow despite the higher prices of oil. The
continued increases in demand in the face of sharply higher prices reveal
that demand for petroleum is relatively inelastic, probably because
there's just no reasonable substitute for oil and gas.
This is just an issue of price;
when the price of petroleum gets high enough, people will change their
behavior, and we'll be fine.
The argument. We can
already see it now. The resale value of large gas-guzzling vehicles is
dropping; people are driving less and driving smaller cars. People are
investing in alternative energy companies much more than they were. This
is a good thing, and in the long run, it's millions (or billions) of
decisions like these that will help us adjust to the new reality of higher
petroleum prices. It won't be pleasant for everyone, but we're not talking
mass starvation either.
Refutation. Yes, price
will change people's behavior. And yes, there's no question that we will
conserve more, drive less, and seek alternative sources of energy as the
price of petroleum and all things provided by petroleum increases. The
question is whether we humans, having waited until the moment of peak oil
to address it in a fundamental way, will be able to change our
behavior fast enough to avoid widespread disruption and starvation.
Consider, for example, the
Hirsch Report on Oil Peaking.
Written by Robert L. Hirsch for the U.S. Department of Energy in 2005, the Hirsch Report
describes the impact of any disruption of oil supplies on a developed
economy:
Higher oil prices result in
increased costs for the production of goods and services, as well as inflation,
unemployment, reduced demand for products other than oil, and lower capital
investment. Tax revenues decline and budget deficits increase, driving up
interest rates. These effects will be greater the more abrupt and severe the oil
price increase and will be exacerbated by the impact on consumer and business
confidence.
The report analyzes the time it will take to prepare for peak oil with conservation,
replacement of transportation vehicles, and development of alternative
fuels (collectively, "mitigation"). The report examined three scenarios:
(a) mitigation begins only at or after peak oil occurs; (b) mitigation
begins 10 years before peak oil, and (c) mitigation begins 20 years before
peak oil. Only if mitigation begins 20 years in advance of oil peaking,
says the report, will society be able to avoid prolonged and painful
disruption. If mitigation begins 10 years in advance of peaking, the
disruption (shortfalls) will persist for approximately 10 years after
peaking occurs. If mitigation doesn't begin in earnest until peaking, the
economy will suffer disruptions for 20 years or longer after peaking.
The world has never faced a problem
like this. Without massive mitigation more than a decade before the fact, the
problem will be pervasive and will not be temporary. Previous energy transitions
(wood to coal and coal to oil) were gradual and evolutionary; oil peaking will
be abrupt and revolutionary.
And consider this: despite the reassuring pronouncements of CERA and
the National Petroleum Council, every indication is that peak oil is
already upon us or will be arriving within five years. We've already
waited too long to do either the 10-year or the 20-year mitigation. This
doesn't look good. No, by the time we see super high prices, it will be
too late to avoid the massive disruption of the economy that will result.
Once we figure out a way to deal with the nuclear waste, nuclear energy will
be the answer.
The argument.
Nuclear energy will save us from major disruption due to peak oil. It will
produce vast quantities of electricity at affordable prices, using cheap
and plentiful uranium. As a bonus, nuclear energy produces no greenhouse
gases. All we need to do is to find a reasonable and safe way to dispose
of spent nuclear fuel, and we will be in good shape. And even if the cost
of uranium were to increase, it wouldn't increase the cost of the
resulting power that much, because the cost of the fissionable material
makes up such a small portion of the cost of nuclear-generated
electricity.
Refutation.
For most of our lives, we have feared nuclear energy and
opposed its development. Now we find ourselves reluctantly admitting that we
have little choice but to use nuclear power as a stopgap. That's not
because we see it as a great alternative, just the best intermediate term
alternative. Let's be honest, however, about the limitations of nuclear
energy:
- Somebody would need to teach the U.S. President how
to say it.
- There is that vexing question about what to do
with the spent fuel. None of the options developed so far are at all
appealing. We will surely forge ahead with the construction of nuclear
plants; but the problem will remain, and it gets worse with each plant
we build.
- The dirty little secret about nuclear energy is that it uses
prodigious quantities of water. As water becomes increasingly scarce,
there will be disruptions of nuclear power plants. This has already
happened once in Alabama in the summer of 2007. It will get more common.
- The construction of a nuclear plant requires
huge quantities of steel and concrete. So even though the process of
producing electricity with uranium doesn't generate greenhouse gases or
use petroleum, the construction of the plant surely does.
- Let's not forget why we stopped building new
nuclear plants in the U.S. The accident at
Three Mile
Island scared us all about the inherent dangers of nuclear energy.
It's still scary technology, and the threat of terrorism doesn't help.
- The world's supply of fissionable uranium isn't
limitless. We're admittedly early in the uranium extraction age, so we
will get better at it just like we got better at oil extraction, but
in the unlikely and undesirable event that we were to scale up nuclear energy,
we eventually would need to plan for "peak
uranium."
- Nuclear power generation is distressingly
similar to the production of nuclear warheads, and much of the
technology is interchangeable, as the current controversy between the
U.S. and Iran amply demonstrates. Let's not think that any nation can
ramp up its nuclear power capability and then tell any other nation not
to. A decision to ramp up nuclear energy is a decision to live with
dangerous and scary nuclear proliferation. And this at a time when we
face the prospect of crippling and interminable energy wars.
- The long lead time for nuclear plants means
that if a nation makes it a priority to develop nuclear energy on a
broad scale, we won't see significant power generation for at least 10
years. That's probably not soon enough to avoid the disruption of peak
oil.
- How close do you want the nuclear reactor to be
to your front door? NIMBY
will be a huge challenge for nuclear energy.
- Nuclear plants generate electricity. That works
fine for the Internet, for lighting and HVAC, and maybe even for
automobiles if they're much smaller and lighter than the ones we drive
now. But trucking? Anybody ready for an electric airplane? And nuclear
energy does nothing for agriculture, which in the American system is a
process of using land to convert oil to food.
The basic problem is that we don't have enough smart people focused on this
yet. Once smart people become aware of the problem, they'll come up with a
solution.
The argument. This
is about more than better oil exploration. It's about thinking really big,
like maybe a whole new source of energy. How about the
hydrogen economy?
Let's think about new ways of living together and get serious about
alternative energy. But the essential fact remains that ours is a society
that thrives on innovation and problem-solving. We have solved the other
problems our society has faced, and we can solve this problem too.
Refutation.
We couldn't agree more. Far too much of our brainpower
is focused now on the latest celebrity marriage or divorce and on which
team will win this weekend. We do need to focus our efforts on
solving the problems that peak oil will bring on. So let's get busy. And
let's not delude ourselves that we can solve the world's energy problems
with a goofy idea like the hydrogen economy.
For the chances that alternative forms of energy will replace petroleum,
take a look at the next heading below this one.
In all likelihood, the most productive steps we
can take are focused on learning to live in a peaceful and healthy way
while consuming drastically lower levels of energy.
Read more about the steps we can take.
This blind faith that "somebody will figure out something" is the
"poof theory" of peak oil mitigation. As long as you keep your faith blind enough and don't ask
the logical question "what's the solution going to be?," you can cling to
your optimism and no one can shake you from it. However, the moment you
ask probing questions about the new technology, or the new statute, or the
new source, we can research together where the
energy would come from to power it, what hurdles would have to be removed
for the energy source to replace petroleum, and how long it will take to
remove those hurdles. Fair warning: we haven't found anything approaching
such a solution yet, and we've looked hard, maybe even harder than most.
You're right, we are running out of oil; we won't really solve this problem
until we get serious about solar and wind energy.
The argument. It's
high time we began to develop renewable energy sources like
solar,
wind,
geothermal,
and tidal.
Although none of these alone is enough to replace petroleum, together they
can allow us to continue to thrive.
Refutation.
By all means, let's develop these renewable energy
sources. And let's immediately move to encourage individuals to
incorporate them in their homes by requiring every electric utility to
allow net metering.
But let's be honest with ourselves that these renewable energy sources
produce a tiny fraction of the power that we generate with petroleum now.
We still need to change the way we live so we can live peacefully and
comfortably while using drastically lower quantities of energy. Journalist
Richard Heinberg puts it best: he likens fossil fuels - cheap oil and gas
- to a massive inheritance we have spent unwisely, and he likens
their logical successors - solar, wind, geothermal, and tidal - to a
hard-won living wage.
Thank goodness for peak oil, which will solve global warming once and for
all.
The argument. We
can't bring ourselves to lower our generation of greenhouse gases, even
though everybody but
Michael
Crichton has figured out that we are contributing to our own
destruction. This insanity won't stop until we just run out of oil and
gas, so bring it on. It's our only hope for survival.
Refutation.
Would that it were that simple. If we continue to
live by looking only at the short term, we'll try to replace petroleum
with coal, which generates much higher levels of carbon dioxide and a
smorgasbord of other nasty chemicals like sulfur oxides, mercury, nitrogen oxides,
particulates, and even high levels of radioactivity. We can't depend on
peak oil to address catastrophic climate change; that's going to take a coalition of
nations that are willing to reign in rogue nations like the U.S. and China
and force lower levels of CO2 emissions.
What's more, the effects of catastrophic climate change will
make it harder for us to cope with the effects of peak oil. Just as sea
levels rise and begin displacing people who live by oceans, and as higher
ocean temperatures make storms more frequent and more intense, we will
confront a shortage of the energy needed to ameliorate the effects of
these disruptions. It's not a pretty picture.
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