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Dave Cohen

Dave Cohen

Dave Cohen writes the blog Decline Of The Empire. His commentaries cover a wide variety of subjects, including the American economy & macro-economics, the oil…

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Should we Still be Concerned with Peak Oil?

Should we Still be Concerned with Peak Oil?

With oil prices falling precipitously, this seems like a good time to reassess the widely anticipated phenomenon known as peak oil. How much of a threat is it as we look into the future?

There are basically two camps about the peak of global oil production.

•    Cornucopians — Not only is the glass half-full, it is brimming over. There is no threat whatsoever to industrial civilizations. The Stone Age didn't end because we ran out of stones.
•    Doomers — The glass is half-empty and we're draining it fast. Industrial civilizations are going to collapse soon because there won't be enough oil to go around. A new Stone Age is right around the corner.

Both these "schools of thought" are wildly incorrect. It's not an accident that this kind of dichotomy exists. It's not an accident that these opposed views closely resemble the political squabbles so prevalent in the United States today. You know, Progressives versus Conservatives ... blah, blah, blah. These are emotionally-based positions which have little to do with Reality. Naturally there are many more Cornucopians than there are Doomers because mindless optimism is the default human position (mistake) in all matters, not just oil.

I can demolish both positions in two sentences.

•    Cornucopians do not know how to subtract.
•    Doomers do not know how to add.

Of course when I say these people don't know how to add or subtract, I am describing the psychological requirements of these groups. Cornucopians cannot acknowledge that oil fields peak and decline, and that global oil production might do the same. Doomers cannot acknowledge that technology, exploration and wars in Iraq bring new resources on-stream. By and large, members of both groups know bugger all about the global oil industry.

Every other week, I describe some aspect of the upstream oil industry in my Saturday Oil Report. (The latest one was published yesterday.) Few people read these reports or learn anything from them because they already know in advance, unencumbered by data and its reasonable interpretation, what the peak oil outcome is going to be. (Some people do read these reports and learn from them, for which I am grateful.)

With respect to oil, as in all human politics, people fall into opposed camps. Their irrational beliefs about peak oil (or anything else) maintain group membership and coherence, and bolster their pre-conceived (but unconscious) psychological preferences. They are not trying to align their beliefs with Reality—that's not what people do. See my recent post Homo Sapiens — The Storytelling Animal. In short, Cornucopians or Doomers have got a story and they're sticking to it. Nobody reading this thinks people are rational problem-solvers, right?

What's the real deal with peak oil? First, there's this very important graph.

World Crude Oil Production
World Crude Oil Production, data from the EIA. Crude oil only. No biofuels, no natural gas liquids. See my post A Peak Oil Update.

How long might this plateau in oil production be maintained? For Cornucopians, the answer is not as long as you think. For Doomers, the answer is longer than you think. At least 5 years, perhaps 10, or even 15 (a very outside chance).

Of course this is merely a supply graph. Who knows what global demand will look like. Right now, it doesn't look like demand will be robust, and that could remain true for many years to come. If we're falling into a prolonged global recession, OPEC will cut their production. (You can see the supply dip in 2009.) The world will never produce 76 million barrels of oil each and every day for a prolonged period of time. Probably 76 million daily barrels is a pipedream.

Without getting into the details, what can we conclude about peak oil going forward? You don't have to be a rocket scientist to understand that—

1.    Oil will never be cheap again. Even if demand falls off a cliff, producers require high prices to get new oil on stream to replace production declines. If demand is robust because the world economy is booming, as unlikely as that sounds right now, oil will get very expensive again in a hurry.
2.    Industrial civilizations are not going to go out of business because oil is very expensive during the boom times and pricey (but not exorbitantly expensive) during the lulls. Peak oil acts more like a brake (one of many) on global economic growth when times are good. As usual, we'll know more in 10 years than we know right now.

I don't worry much about the disasters I write about. The writing is on the wall as far as I'm concerned. But if I were to worry about all these human disasters, where would I rank the threat of peak oil? I don't know. It's certainly a concern, and I do write about it, but I write about lots of stuff. Certainly the longer term is fraught with difficulty if humans are depending on crude oil to fuel economic growth in the 21st century as it did in the 20th.

I was careful not to name names today. I did that intentionally. The people who can understand what I said today will understand it. The ones who can't won't. These latter are likely to be Doomers or Cornucopians. If I did name names, people would go off on me because I'm clearly messing with their with emotions, their irrational beliefs, their heroes, and finally their group and individual identities. So I didn't name names because I don't like getting hate mail or emotion-laden malicious comments.

As usual I leave it up to you to figure out whether what I said today makes sense. You will see that it makes sense or you won't according to your abilities as just described.

By. Dave Cohen

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Leave a comment
  • Mel Tisdale on June 26 2012 said:
    Surely, it makes sense to plan for peak oil. And even if one disagrees with that notion, surely there can be no argument about the need to plan for climate change.

    While there are some ‘ostriches’ who deny that climate change is happening, most people, even Republicans, accept that it is. What is most in dispute is how bad it is going to be. The most intelligent thing to do is to hope for the best and plan for the worst. On this issue, intelligence has been sadly lacking, but if we can rise above that, and it is a big ‘if’, then oil consumption is going to have to decline and decline rapidly. One way of achieving that is for the price of oil, either due to supply constraints, or some other means, to rise dramatically so that it forces us to find alternatives, and ones less carbon intensive.

    While the author, one Mr Cohen, might be what he obviously believes himself to be, i.e. one of the world’s greatest living experts on oil supply and demand (even more knowledgeable than expert geologists working full-time on the matter) his biography rather indicates that he is probably the exact opposite.

    Many think that climate change is far off. It isn’t, it is with us now. While it is impossible to say whether any particular extreme weather event is specifically due to climate change, we can say with confidence that the increased number of such events certainly is. We can also say with confidence that it is going to get a lot worse before it gets better. I would have more respect for Mr Cohen if he were to address the issue. Old Mother Nature’s laws are immutable, no matter how some congressmen might wish them not to be.
  • MrColdWaterOfRealityMan on June 26 2012 said:
    And unfortunately, neither group understands the exponential function, or systems integration.

    Oil price and physical energy return on oil are interrelated. The more energy inputs needed to get oil from well to tank, the more expensive hydrocarbon fuels get.

    The world's "just-in-time" supply chains depend on *cheap* oil, even the coal and gas lines that services your power station. As oil gets more expensive, fewer supply chains of goods and services are sustainable, INCLUDING THOSE INVOLVED IN THE LOCATION, EXTRACTION, REFINING AND DISTRIBUTION OF OIL ITSELF.

    At that point, feedback effects kick in and the decline in what we now consider civilization is decidedly nonlinear.
  • wake up on June 26 2012 said:
    I hate when people think they're clever when they conclude that "both sides are wrong and the answer must lie somewhere in the middle". It's such a cop-out. The smart answer is to side with the "doomers" because math is on their side. A finite resource will eventually hit a peak in production. The question is not whether the peak will happen, but when.

    The numbers show that we hit a plateau in global oil production about 5 years ago. And it may not even be a plateau. Perhaps the peak has already occurred. You have to take into account that we are pursuing oil sources that are harder to get at. We are drilling deeper and further off shore, we're fracking, we're steaming oil out of tar sands. We've drained the supply of easy-to-get oil, and what's left is significantly more difficult to extract. In other words, we're burning oil to make oil.

    It's also possible that we're drawing from other energy sectors - coal and natural gas - in order to sustain oil production at these levels.

    So, when you look at that graph of oil production you have to take the flexibility of the market into account. Is it really a plateau? Or are we looking at a peak?

    If there is even a 1% chance that the "doomers" are right, then listen to them. Let's think about this for a second. Would you share a needle with an HIV positive person (1% chance of transmission)? If you say "yes", you're a cornucopian, if you say "no" you're a "doomer".
  • captain obvious on June 27 2012 said:
    Dividing opinions on peak oil into these two extremes is a false dichotomy. Also your definition of cornucopian seems incorrect. A cornucopian believes that technology will solve everything - being an irrational optimist is just a logical consequence.

    Yeah sure, peak oil will act as a brake, you are giving us nothing new here. Ever heard of demand destruction? A brick wall can be considered a brake when it stops you from going any further. A large enough negative acceleration will kill you. The same applies for modern economies. This concept does not invalidate even the "doomer" straw-man you've constructed in any way. In-fact, I think your straw-man eats you and your article for breakfast.

    BTW, nice try eliminating all criticism by alluding that disagreeing with you equals being emotional or irrational.
  • Dave on June 27 2012 said:
    Those that adhere to the collapse scenario aren't necessarily doomers. Financial collapse, it seems to me, is in the cards. Not because of a catastrophic decline in oil production, but because peak oil implies the end of debt expansion. Since we have a financial, economic, monetary system built on expansion, even standing in place will mean collapse.
    I am not so concerned with the oil decline as I am to the reaction that will follow. Just-in-time deliveries of food, credit to farmers, long supply lines are all
    fragile, and likely to freeze up with a financial rout.
    Add to that the psychological reactions of the market participants, and we will have a crisis in all probability turning into catastrophe.
  • monk on June 28 2012 said:
    Don't forget to see supply in relation to population, or oil production per capita. That peaked in 1979.
  • Patrick on September 09 2012 said:
    Modern industrial civilization requires energy and materials. A switch to alternative energy cannot make industrial civilization sustainable because alternative energy still requires the use of finite, non-renewable materials. Finite non-renewable resources must be used to build solar panels or wind turbines. Eventually these machines wear out and must be replaced. Due to the laws of thermodynamics, nothing can be recycled with 100% efficiency. Therefore, solar and wind power may be renewable but the devices used to capture them are not. Peak oil is not the only problem facing civilization. Any civilization which is based on the use of finite non-renewable materials is unsustainable. Alternative energy will only buy industrial civilization a few more decades, during which we will have even more population growth and even greater loss of biodiversity, making the inevitable crash that much worse. When you factor in soil loss, peak oil, aquifer depletion and widespread drought, depletion of forests, fisheries, and mines, it is easy to predict that modern industrial civilization won't survive to see the next century.

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