If you haven’t heard of “peak oil” before, you’ll be hearing a lot more about it in the coming years, because it’s here. For the first time ever – EVER, in 2010, oil consumption exceeded production by over 5m barrels per day.
And one wonders why we have $100 oil and $4 gas.
While politicians blame speculators and Americans whine about gas prices, emerging economies are growing their middle class like gangbusters. They want what we have. And can you blame them? Americans, with only 5% of the Earth’s population, account for 25% of the planet’s energy consumption. So, what happens when the rest start to behave like the West? Peak Oil. That is, a scenario where we can no longer increase our output any more than the current rate – and the reason we have the current rate is because of the insatiable demand globally. The ONLY place on earth with excess capacity is in Saudi Arabia and well, you know how that OPEC cartel thing’s working out.
Chart – compliments of the Economist
(click to enlarge)
Implications of Peak Oil
The implications are obviously dire. While in just a few short decades we’ve essentially depleted a good deal of the material that took millennia to form (thanks to hoards of dead dinosaurs and plant matter; it’s amazing to contemplate just how much oil actually exists!), the alternatives aren’t desirable.
- Alternative Energy Sources – At current prices, solar, wind, thermal and other “renewables” just aren’t cost-effective. However, with the subsidization they’re seeing now and when comparing against $200 oil or higher, these technologies will seem viable in the future. They’re just not now. So, it pushes us further to the brink – of oil depletion. Natural gas has a future, but there are the usual environmental concerns there. And nuclear? Well, it’s cost-effective, but the political fallout from Japan has set nuclear ambitions back decades. There will be some tough policy decisions to be made for sure.
- Price of Oil – Peak oil means the end of cheap oil. Forever. While consumption continues to exceed production, that simply means that oil reserves dissipate and supply/demand becomes a household term. As supply can no longer satiate demand, one of two things happens – prices spike (which we already see at $100 oil, but we can see $150 again, $200 in the not-too-distant future), and the only way to then quell demand is another global recession. But each cycle will be worse and worse with the oil price low exceeding the old low, until we’re actually rejoicing when prices at the pump “drop to $8” instead of howling when they breach $4 like this past spring.
- The American Way of Life – It will be different. The 4th of July trip to the lake house, plane flights to Disney and the 50 mile commute so you could buy a bigger house in the exurbs? None of this will be affordable to the typical American family. Well, most of this isn’t affordable now; but even for upper middle class families, this is a tax. Higher energy costs will sap the budgets of all but the richest Americans. I’m in no position to predict what year this will happen, but we will likely see this in our lifetime.
In a perverse way, the industrial and operational miracle of high volume extraction in a cost-efficient manner has made oil so cheap and plentiful that we’ve burnt through most of it in just a few short generations.
So, enjoy it while it lasts! It is finite and it is dwindling. The future is here.
Does the Notion of Peak Oil Bother You?
What do You Think the Implications Are?
Suggestions?
{ 18 comments… read them below or add one }
Agreed. Peak Oil is upon us but we blissfully ignore it here in North America.
Those oil sands companies in Alberta will make a lot of money ….
I had invested in tar sands for a while (Suncor) and it went nowhere! Ahh. I guess markets are too efficient for me up in Canada…
I am starting to drive less and ride my bike more. The impact though of the higher prices is still nominal because we drive so little.
Then you must have loved my article on whiny Americans and gas prices (no impact to you!)
I agree that peak oil is not discussed enough. I think peak oil is certain to cause some disruptions to the normal course of business but to what extent? I’m not sure. We’ve tried our best to insulate ourselves from the potential implications in both consumption and skills though it’s more an occasional nag in the back of my head then something I’m especially worried about day-to-day.
It’s too bad most people are still ignoring Peak Oil and haven’t changed their habit. Sure they complain about $4/gallon fuel cost, but we need to take more steps to prepare for the future. We share one car now and I feel like we are doing our part adjusting to this new reality.
That’s impressive! My wife and I could never share a car. I’m too messy!
Though I knew it was happening, I didnt realize it would happen so soon. One of the reasons I got a job where I could walk to work is because I knew gas prices would go up – it’s simple economics. Most people dont tend to look at life cycle costs and things, so they dont take into account price changes (or even spikes) that suburban house looked cheaper 2 years ago when gas was 2.50, and now it’s costing the person an arm and a leg. Coulda saved money by living closer to work.
Yes, that’s one of my biggest complaints about Americans complaining about gas prices. We choose to commute 50 miles each way to work to afford the bigger house in the exurbs, then complain when gas spikes. Duh?
Two words: mobile workforce… and two more… deskless workforce.
Let’s face it – in most businesses, that 50 mile commute is almost, if not completely, unnecessary (mine has topped 70 miles each way at times in years past on consulting gigs).
Corporations like Chevron, and transportation companies like Continental (now United) Airlines don’t care about fuel costs, the ecology or the loss of 3 hrs. a day for each employee traveling that 50 mile commute (which is actually about 50 / (avg. 40 mph. rate of travel in heavy traffic, if you’re fortunate) = ~75 minutes each way, so about 3 hrs. when adding in city traffic / parking garage, etc.
That’s all a total waste of time, increase in stress and anxieties, increase in health risks of car accidents, hypertension, road rage, night blindness, insomnia, narcolepsy, catoplexy, ADD, ‘spare tire gut’, hemorrhoids (had to look up that spelling), and probably a bunch of other stuff… but I digress.
Simply put, get yourself the best dang internet connection you can find or afford, get a good quality Cisco router (shameless plug, I work there, but they are leading the herd in mobilizing the workforce) and VPN yourself into virtual nirvana with your extra 3hrs sleep a night. Not to mention that you can save a tree (parking tickets), leave some dead dinosaurs in the ground (for use later), prevent a Valdeze, reduce sulpheric acid / acid rain (if your power grid is solar, water or nuke and not coal), save some dough, and probably get to know your spouse and kids again… pretty cool all around.
Heck, you could even save enough to buy that Hummer that takes a C-note to fill up, to drive to the vacation house, and blast around the lake weekends on your 30-ft. cigarette boat… but at least you’d be saving gas 5 days a week.
3 cheers for the digital revolution.
I was just talking about this at work today. So many leaders are still old-school and refuse to embrace remote work. They’re afraid of being burnt by that one person who goofs off and takes advantage of it… even though they can just dilly-dally at the office instead. It doesn’t make a lot of sense – as long as the work gets done, right?
I purport that the PF community as a whole is more keenly aware of Peak Oil or Peak Resources.
Yeah, I think the PF community is more aware of most things that actually matter. They’re not spending as much time watching American Idol or UFC.
Among many other studies reaching similar conclusions a Deutsche Bank analysis of oil intensity shows over the last 30 years showed that the annual percentage change in oil demand has equaled 0.9 percent of global economic growth minus 2 percentage points. Meaning in short that global GDP GROWTH is directly dependent on oil production GROWTH. Central banks world-wide are manufacturing nominal growth but ever great numbers of market participants are becoming aware that nominal growth is not REAL growth. Without real economic growth interest payments on global debt outstanding can not be paid. Defaults begin to cascade through the international monetary system. “The acknowledgment by market participants that peak oil is upon us, coupled with an understanding of the consequences is likely to permanently crash the global financial system….”once the effects of decline become apparent, we will lose much of what we might call the operational fabric of our civilization. This includes functioning markets, financing, monetary stability, operational supply-chains, transport, digital infrastructure, command & control, health service, institutions of trust, and sociopolitical stability. It is what we CASUALLY ASSUME does and WILL exist, and which provides the structural foundation for any project we wish to develop…If an energy constraint means it cannot grow, it does not just get smaller, it starts to break up..Thus we can say that the more technologically advanced a process the greater risk it faces from supply-chain breakdown, just like the old rhyme:
For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.”
~Tipping Point by David Korowicz
Darwin,
I have been waiting for peak oil to arrive for years. The production from oil fields in Mexico, Iraq and Kuwait have dropped as much as 8% in a single year. It’s no surpise to me that it’s happening. Although, most Americans will be surprised, thanks to our gutless politicians.
It’s really not the end of the world. There are many legitimate substitutes for gasoline including DME, ethanol, Propane, CNG, hydrogen and syngas made from coal. The real issue isn’t, what will we do without oil? The real issue is, why are we still burning carbon for energy? It’s very primitive, costly and inefficient. It’s a caveman’s existence in the 21st century.
The best and most obvious solution is electric vehicles (EVs). They won’t work for everyone. But, they make sense for enough of the population that it could take a big load off of oil. Right now, you can buy a Nissan LEAF for $30K and it has a 100 mile range. In 5-10 years, there will be dozens of EV models for around $20K, with a 200-300 mile range. EVs make even more sense in developing countries, because they cost way less to maintain and operate. Throw in a couple of solar panels and you have free energy, with no pollution.
The only reason we didn’t have modern EVs years ago is because oil companies would lose gas revenue, automakers would lose maintenence revenue and the government would lose tax revenue. So, they collected up the EVs and crushed them. Then, GM sold the patent rights to the NiMH battery to Chevron. Now that Li EVs are available, we can’t be held hostage.
Bret
Well, it won’t mean the end of the world; it just means a more expensive world. that translates into a lower standard of living for economies that rely heavily on fossil fuels that are cheap, namely, America. So, we’ll still exist, but life will be different!
Tis a sad truth. Problem is, theres too many people in the world. How much longer would the oil have lasted (and continued to last) if there were half as many people in the world using it? Not just oil but food too. There WILL come a time when there wont be enough land for everyone to live on AND enough land to grow food for said people. Maybe that wont be for another 150 years but it will get here eventually. Population control should have been implemented world wide years ago. I am not some crazy person saying we should start WW3 or spread diseases in order to kill people off, we should just be having a lot fewer births every year than we do. There is no need for a couple to have 5, 6, or 7 kids these days (I am aware not many couples do, I am just saying.) We should encourage couples to have fewer children and have the ones they do have years apart. Also fix everyone on welfare, as more often then not their offspring grow up and into welfare just as there parents did and do nothing for themselves. Unpopular opinions but Idc.
There’s something to be said for population growth; interestingly, the trends are showing that by the end of the century, the global population will actually decline! That’s crazy and doesn’t seem possible. but the reason is tied to the macro trend of declining birth rate globally. If you go back just a few generations, even western societies had fertility rates of like 7-13 kids. My grandmother was one of 13 (Irish!). These days, it’s like 2.something in US/Europe. Well the higher birth rates in developing countries are dropping as well. So, even though there are still tens of millions of kids born each year, because the actual rate of increase is dropping dramatically over time, the curve shifts and hits an inflection point within several decades, then declines. What will be interesting is to see how economies can grow GDP when ALL populations are actually in decline. Right now, the US imports our population growth via immigration and barely beating the birth/death ratio. In the future, many countries will see endless declines in population. Who knows, maybe then, economists will be deriding the world’s “low” birth rate! We won’t be around to see it though; the world is a busy place to be sure.
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