OIL PEAK: I lived thru the energy crisis of the mid-1970s and early 1980s, so I can remember gas lines and 50 MPH limits on Interstate highways and chilly houses where thermostats were set at 68. We suddenly became aware just how dependent our comfortable middle-class lives were to a steady supply of cheap oil and gas from foreign countries. By the time of Ronnie Reagan, though, all the energy angst started to fade away like a bad dream. New sources of oil were found throughout the world, cars and factories and appliances got more efficient, and gas stations were open after 6 PM once again. It turned out to be nothing more than a little burp in the process by which the free market economy feeds the American cornucopia.
So we got to 1990 with the energy situation looking pretty good, and then ditto for 2000. It seemed a little bit scary when US oil production started declining in the early 90s, making us more dependent upon foreign oil — the situation that got us into such trouble in 1973 and 1980. But non-OPEC sources right close to home (Canada and Latin America) were filling the gap, so it wasn’t anything to lose sleep about. Another potentially scary thought was that over 25 years had passed since the first energy crisis, and yet we still hadn’t developed any significant alternate sources of energy (and still haven’t as of today). But the big boys seemed to have other things to worry about, so I and a whole lot of other people let the subject pass.
And now here we are, in late 2004, with oil prices hovering in the low $50s per barrel. Another OPEC embargo? No, OPEC is pumping away, valves to the wall. War and terrorism? Yea, here and there – but nothing any worse than in the early 90s. This time, oil output isn’t keeping up with world demand. And that’s a real problem; this time it ain’t a political crisis. It’s a hint that there are natural limits regarding how much oil is practically available in the world, and that we’re going to be dealing more and more with those limits over the coming years.
Excluding a big terrorist incident, it’s very possible that oil prices will settle back down into the $40 – $48 zone for awhile. This is like the first sign of a toothache; you get a little twinge, but then get to ignore it for a while. There is still some new oil to be discovered, and there are still some tricks that can be used to suck out the last drop from existing wells. But ever since about 1985, the world has been using more oil each year than it has discovered. And the trend of discoveries shows a clear downward trend, despite the fact that technologies have gotten better and better over this time (see The Growing Gap chart). The logical conclusion is that oil output cannot continue to grow indefinitely; the day of peaking and then decline may not be that far off.
I did a search on the net and was surprised to find that a lot of people are thinking and talking about this subject right now. Just do a search on “peak oil” or “Hubbert peak” and join the fun. Sure, there are various apocalyptic cranks in the mix, but they are generally British cranks who usually put a fair amount of thought into their crankiness. A surprising number of those cranks are people with experience in the oil industry.
Not surprisingly, the scenarios vary. Some people say the peak will come by 2010. Others say in the 2010-2020 range. The U.S. Energy Information Agency issued a study using 2037 as the “middle scenario” for peaking. Obviously, there are some who don’t think a peak is even in sight. Along with the immediate crash people, these “endless growth” people are off on the extremes of the bell curve. The whole notion that oil production may peak and start declining within the first third of the 21st Century seems to be gaining respectability. You’re going to hear more and more about this issue in the near future. And it’s gonna be important to listen.
Why? Well, our world’s economy is built up around oil, as it has been since about 1950. If the peak comes slowly and gives us lots of warning, the world can adjust by substituting alternate energy sources and developing new ones. Prices will go up and economic growth will slow down because of the costs of the changeover, but by the second half of the 21st Century, America and the world will be better off for it. But if the peak comes too quickly and unexpectedly, there will be lots of angst as prices and unemployment skyrocket, poverty levels rise, oil shortages occur, and a whole lot of people become unhappy. International tensions will flare and resource wars will erupt. We’re talking about something like the Great Depression here (ironically, it could be the 2030’s … 100 years after the last Great Depression). It will be quite a while before stability sets in and progress resumes, such that a new era of energy (including hydrogen, which is clearly NOT ready for prime time right now) will dawn upon the land.
You didn’t hear any talk about the oil peak during the recent presidential election, but you’re going to hear much blather about it during the next one. It’s time right now to start getting your facts straight, before the Democrats and Republicans warp them all over the map. This is going to be one of the major issues of the second half of this decade.