Peak Oil

On the companion stock market blog, Yelnick has been running a series on the uber-bears crying Wolf! Wolf! too often and losing their following.   Eventually, they will be proven right, but their followers will be tapped out by then.  Something similar may be occurring in the oil patch. 

The NYT Sunday Magazine ran a great piece on Peak Oil today.  Peak Oil is the bumper sticker for what happens when we hit max production out of current oil fields.  It doesn't mean we are running out of oil.  It means we can't get any more output from the wells.  Consequently, the marginal price of oil - what increasing demand will pay for the oil that we can no longer extract - will skyrocket well above the average price of oil, locked in by long-term contracts. 

Implication is we need a new fuel source ASAP.  The problem is that we have had at least five prior moments when some oil-industry Cassandra yelled Wolf! Wolf! and the Peak Oil problem abated.  Hence it is very difficult to get political momentum around doing anything about it, until it occurs.

Why Peak Oil now?  We have had no major oil field discoveries for 35 years, and the  Hubbert's Peak of a field is about 40 years after a discovery, meaning within the next 5 years we hit Peak Oil globally.  Or sooner, if the Chinese continue to grow their fondness for oil.  And while modern technology can stretch an oilfield, it also depletes it faster, so output falls more quickly post-peak than it had ramped up. The very attempt to push for more output can damage a field and cause a much lower output (this happened in Oman recently).  Perhaps most disturbing is that OPEC members inflate their reserves so as to be able to pump more out - their cartel allocations are based on reserves - so how much is really there?  Very soon we may hit the point where (a) demand exceeds productive capability and (b) stretching output will caused the fall off the peak to be more rapid than the rise.

What to do?  We do not have compelling options:

• Oil shale/oil tar/coal?  Other fossil fuels could bridge the gap, although they remain expensive and their cleaniness is questionable.

• Nuclear? Nukes could offload use of oil for electricity, but could they develop a new vehicle fuel? Possibly hydrogen, either generated directly by neutrons, or indirectly by conversion first to electricity then splitting water, but that is vastly unproven at scale.
• LNG? Again, not a vehicle fuel option.
• Renewables? Lack the scale to solve this problem, and again do not create vehicular fuel.
• Conservation? Sure, but the impulse to conserve may break against global competition.

In this regard the Kyoto Treaty would have been the wrong solution, as it would have allowed China/India to be wasteful consumers of oil just as it crimps the US into even more conservation, leading to likely xenophobic consequences as nations scramble to cheat on Kyoto. Peak oil is a real issue; global warming is a wedge issue to drive hidden agendas into the economy.

If Peak Oil occurs, will we got to war for oil, to maintain our living standards? Have we already?

The solution to peak oil will take time to implement, so delay is going to deepen the crisis. The risk is the crisis hits quickly. Doing a 50c tax to balance the budget (as Kerry proposed back in '91) is a reasonable idea for the wrong reason. This would have become just another burdensome tax that would allow the government to keep spending too much. Doing a 50c tax to encourage conservation, and to finance an alternative to oil, is more interesting, but why would we believe the government can properly allocate the excess funds? In the recent energy bill we didn't even take a baby steps such as raising the fuel efficiency standards for cars, or incenting hybrid vehicles. Might we need something like the California stem cell bond to finance cleantech research & development out of the nefarious hands of the government?  Or does the multi-$B energy industry lack R&D funds?  Hardly. 

It seems the real problem is the Wolf! Wolf! lack of true belief the crisis is at hand.

A loyal Yelnick reader informed me this morning that the market will solve this problem - it just may not be the solution we would want.

Comments

[Vemenemadem]

Are you interested in my wasteful charms I have a good fresh joke for you! What do you get when you play a country music song backward? You get your wife back, you get your job back, you stop drinking ...

[Sandra]

How much more government news aegecins can we obsorb as a people. I don't want a Pravda and other news aegecins supported by the Govennment,,,us,,,,,let them die a natural death and be done with it....They do not represent the people anymore. News use to be just that News it didn't matter what their political agenda was that was covered very well by the editorial page....Not so now....They certainly are not government watchdogs as they use to be......everything changes so let them die. Never give them subsidies If the government tries they well be beholding to them and the government never gives anything for free....they will dictate the terms....I ramble...stay well....

[Alina]

It sickens me to see how braaewishnd you people are. you think economy is godyou think the united states is the worldyou think media is the source of all knowledgego read some books.And sorry, that answer was not directed at you asker at all. It just is truly painful for me to read people so convinced that there is actually a reason to make a lie like global warming up. It would be impossible to argue that it is a money making scam, because it doesn't make money. I think it would be cool to argue that the benefits of acting on curtailing our GHG emissions far outweigh the costs of not, should effects of climate change occur. Research the Stein report for this. It is a 700 page economic analysis done in 2006, but you can get the summary and it has some good information.The cost of millions if not billions of refugees due to unseen levels of famine, poverty, natural disasters, disease, political turmoil, and war is something that will be not easy, but rather outrageously expensive to deal with. It is important to be far sighted, for our generation is but a fraction of history, and i don't want to be the generation to set up the future's struggle and downfall.Also, for all you arguing that the climate always changes and that is proof enough that global warming is just natural, go study some climatology, its a science. Of course the climate is changing, it always has, it always will forever and ever. We will never know the Earth's status in 3 million years, she will probably change faces 10 times over. What climate change refers to is the RATE of change in temperature. Since the industrial revolution when our GHG emissions started to climb drastically, so did the rate of the warming world. It is not noticeable year to year, it is a trend that extends over decades and is dangerous and is a matter of less than 2 degrees. It is not an environmental issue, it is a social issue. The potential for crises in the lives of billions of humans. There is nothing to gain from this lie, everything to lose. please people. PLEASE don't believe the lobbyists trying to falsify this so they can go on with business as usual. READ ALOT, decide for yourself.