Peak oil and other things to keep you up at night

At TerraPass, we’re always going on about carbon this and global warming that. But environmental concerns are just part of the case for alternative energy. So today I’m going to kick off a series of posts that more closely examine the issue of peak oil.

First, a definition: peak oil refers to the notion that at some point in the future we will reach a peak in the rate at which we can pump oil out of the ground. Regardless of the size of the world’s remaining oil reserves, limits exist to the speed with which we can actually extract the liquid from the rock. Once we hit that peak, daily production rates will decline gradually over time.

Why does this matter? Because no such limits exist on the growth in demand for oil, particularly as the huge developing economies of China and India continue to go gangbusters. At some point daily demand for oil will outpace daily production capacity. And we all know what happens when these trend lines cross. Adam Smith’s invisible hand moves in to set things right, giving the world economy a brisk slap in the form of an oil shock.

Peak oil is not a new idea. Shell geologist M. King Hubbert got the conversation started back in 1956. And unlike climate change, the dynamics underlying peak oil are not in dispute. Exxon Mobil understands them; Dick Cheney understands them; and scaremongering web site owners understand them. It is a very simple thing to look at the trend lines and apply the relevant lessons from Econ 101.

What is new is that the concept of peak oil is breaking into the mainstream discourse. An increasingly public debate is taking place over when exactly we can expect to hit the peak and what a post-peak world will look like.

Estimates of peak oil range from 2005 to 2035 and beyond. The details get rather devilish, but also very interesting. More soon.

P.S. If you can’t wait for the punchline, check out Kevin Drum’s superb six part series on peak oil, from which my own posts are liberally cribbed. Or take a look at this recent article in the New York Times Magazine.

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adam

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  1. Matt Robinson - November 17, 2005

    I find the framework of supply and demand lends itself to a clearer understanding of what is happenign or about to happen. Greg Pahl discusses in his book “Biodiesel” (Chelsea Green 2005) the “tipping point” or the point at which the demand for oil reaches supply. As Pahl’s estimates for the time this will happen are the same as above, I suppose these are the same concept.
    However you look at it, Pahl says it best, “the utter chaos this will cause in the global economy is almost too frightening to contemplate.”
    Furthermore, “the huge price increases for oil predicted for the time after we reach the tipping point will lead unquestionably to much higher food prices … A severe global economic depression, massive unemployment, political instability, and more international conflict are almost certain to follow.”
    “It’s conceivable that industrialized society as we know it could collapse — even before we are decimated by the consequences of global warming caused by the use of fossil fuels.”

  2. Adam - November 17, 2005

    Hi Matt,
    Thanks for your comment. I was trying to tell a story about supply (“daily production capacity”) and demand (“daily demand for oil”), but I guess I wasn’t as clear as I should have been. It’s a tricky topic to tackle in a blog post.
    I will say that I’m not nearly as gloomy as Pahl. Reaching peak oil could definitely suck, but I believe the market will provide enough of a corrective to forestall any sort of major collapse.

  3. Lori Snow - January 2, 2006

    Just browsing blogs but had to make a comment here to put things in perspective …..
    Are you the some folks who liquidated your assets, bought survival gear and headed for the hills during Y2K? In Econ 201 we learned that the economies adjust….incrementally, toward equilibrium. Doomsday when oil hits peak production? Think about it.
    Ths smart money will be backing the next likely fossil fuel replacement – get it?

  4. Noah - January 9, 2006

    Lori-
    Another foundation of peak oil theories, besides the simple economic trends, is that there are no. “next likely fossil fuel replacement(s)”
    All of the alternatives (ex. hydrogen, bio-diesel) have serious issues in both their production and distribution.
    The counter-argument? Research and development will solve these issues before the rising cost of oil destroys the world economy. This is a perfectly reasonable expectation. Many technologies improve exponentially when given large amounts of R&D (our ability to sequence DNA is a perfect example of this).
    The flaw in this response? Unlike DNA sequencing,

  5. Adam - January 10, 2006

    These comments touch on a wide swath of issues, and I’m glad that people are raising these very good points. A few comments:
    1) Lori, I agree that the economy will adjust to changes in supply and demand in oil. This is the same reason that I think the “end of civilization” scenarios of some of the more alarmist peak oilers are patently ridiculous.
    But just because the economy will eventually reach a new equilibrium does not mean that the period of adjustment will be fun. Remember the oil shocks of the 70s? Econ 101 applied during that period as well. Supply tightened suddenly, prices shot up, demand adjusted downward correspondingly, a new equilibrium was reached. And the process sucked for everyone involved.
    2) Noah, you’re absolutely right that we should not expect a technological silver bullet. This is a topic I will be touching on in a later post. I concur that the sooner we prepare for a post-peak world, the smoother the transition will be.

  6. Eliah Global Warming - April 28, 2006

    Adam, http://www.green-project.org put up a google map that can atleast highlight the biggest pollution mongers. Buildings that produce far more toxic waste than any car can. They appearantly are putting up stories of how one degree can ruin our lives at http://global-warming-disaster.blogspot.com

  7. benett - May 14, 2006

    one can assume that given the vast resources invested in the oil economy that the timing of peak oil should be well understood by the market stake holders. if the market seeks to extract maximum profit from the oil resource there is a theoretical perfect sycronization of the development of the next energy technologies and the waning oil production.the vital question is if this theoretical handoff is already planned or not. if not how do the stake holders (the corporate rich)plan to protect their profits in the deteriorating economy that would result from an imperfect transition?

    already i have noticed investment dollars are moving very quickly to alternate energy stocks. nuclear energy is making a come back, wind technology is being taked seriously,clean coal is making it’s bid for investment dollars. so we see the beginning of the transition

    my view is that the coming transition is beyond the capabilities of human management and that an inefficient and very destructive transition is very likely. unfortunately our fate lies in the hands of the same people currently holding wealth.if they don’t move immediately to protect their own interests by developing alternate technologies at an abnormally fast pace,we are all in for a rough ride.

    the silver lining to a difficult (understatement) transition is that consumer habits will be radically altered and simplified and the out come may be sustainable global economy.

    buckle and tighten your seat belts

    benett

  8. Adam - May 15, 2006

    Hi Benett. I hope you don’t mind that I changed your comment to lower case. The all-caps were a little loud.
    No one knows when the peak is going to occur. A lot may be at stake, but there are limits to what we can know with certainty. Personally, I think the peak will be painful but not catastrophic, more on the scale of the oil shocks of the ’70s than on the scale of the Depression.

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    Are we safer today than we were before?
    The more people that the government puts in jails, the safer we are told to think we are. The real terrorists are wherever they are, but they aren’t living in a country with bars on the windows. We are.

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