The unspoken reality of “Peak Oil”

October 20, 2009 | By | 14 Replies More

THE world will have to find four Saudi Arabias by 2030 if it wants to maintain its oil dependency, the International Energy Agency says.

The reality of peak oil is fast approaching, and more must be done to develop and encourage the use of alternatives including solar and nuclear, the agency’s chief economist has warned.

“My main motto never changes, the era of low oil prices is over,” Dr Fatih Birol said.

That’s the verdict reported today in The Australian. I thought I’d check to see what other sources had to say about Birol’s assertion, but I cannot find a single U.S.- based source reporting it, other than blogs that are dedicated to peak-oil issues.  This is rapidly becoming a crisis, and almost nobody is discussing it in America.  Not just here, of course–  study groups in Britain have been trying to get their government to begin planning for the reality of peak oil for years, and now they are saying it’s simply too late. (see this also).

Hubbert curve- from Wikipedia (commons)

Hubbert curve- from Wikipedia (commons)

Peak-oil is increasingly recognized as fact- even US Government reports acknowledge the difficulties that are presented by constrained production and increasing demand, even though they don’t come out and label it “peak-oil”.  Despite spending billions of dollars in exploration last year, replacement rates are still falling.  Warnings about under-investment and a coming price spike have been near-constant since the start of the financial crisis last year.

The scale of the problem almost boggles the mind.  Consider this:

Global oil production stands at about 85million barrels per day. Saudi Arabia is the world’s largest producer: it pumped an estimated 9.4million barrels per day during October [2008].

He [Dr. Birhol] said that the challenge was particularly acute because, in addition to the replacement 45million daily barrels needed simply to stand still, an additional 20million would be needed to keep pace with surging demand, mainly from developing countries.

The Western world is utterly dependent upon oil for nearly everything.  Peak oil has never been about oil running out, per sé, but rather that it will become increasingly scarce and therefore increasingly expensive.  A number of analysts have even suggested that last year’s price spike may have been a contributing factor to the start of the financial crisis.

In every case when oil consumption breeched [sic] 4% of GDP, the US has suffered a recession, and indeed, the current US recession began within two months of oil hitting the 4% threshold, that is, when oil reached $80 / barrel.

Are oil price levels the critical factor, or do rapid prices increases – price volatility – also matter? As it turns out, recessions also correlate well with sustained oil price increases. Whenever oil prices have increased by more than 50% year-on-year (trailing 12 month average divided by the previous 12 month average), a recession has followed shortly. Curiously, oil prices doubled in the year preceding the technology-led recession of 2001, a recession not
ordinarily associated with an oil prices shock, and a recession in which oil consumption did not reach 4% of GDP, suggesting oil may have be implicated here as well. On the other hand, the 1991 recession associated with the first Gulf War did not result in a sustained price increase. But prices did, in fact, double for a period of about four months – not enough to cause a 50% annual increase, but enough to cause a recession. While the case for volatility remains somewhat circumstantial, in general, a sustained rise in the oil price of 50% or more has always been associated with recession, and this applies to the current recession as well.

Cynically, one might even argue that much of our foreign policy is dictated by our need to influence (if not control) energy resources in the coming decades.  Iraq has the world’s second largest proven reserves.  Iran is a key part of the proposed Nabucco pipeline. So is Georgia (remember last year’s brief war between Russia and Georgia?).   Guess where else?  If you said “Afghanistan“, you get a cookie.  There’s a fairly extensive compilation of oil-related conflicts around the world available from the Global Policy Forum.

China certainly realizes the value of controlling energy supplies, and they have been rapidly expanding their oil infrastructure as well as locking up agreements with other oil-producing countries. Their enormous capital reserves (courtesy of the American consumer) have afforded them wide latitude in paying (current) top-dollar prices for these assets, which will only become more valuable as the reality of peak oil sets in and as the value of U.S. debt declines.  For enlightening reading on the subject, see here, here, here, and here).  While some here in America dispute the reality of peak oil, it’s worth noting that governments around the world are spending trillions of dollars to lock up access to energy supplies– in other words, they are acting as if they believe peak oil theory to be true, and imminent.  There is no longer any time to create viable alternatives, so access to existing supplies is crucial.

Given that we are experiencing the very consequences warned about by peak oil theorists, it behooves us to begin planning immediately for coming scenarios.  And I don’t just mean this at the national level, individuals and families must begin to plan for a world with much more expensive energy, and all the consequences that entails.  That is, unless you trust the same government who failed to anticipate the consequences of Hurricane Katrina (or of the dot-com bubble, or of the derivatives bubble, or the real-estate bubble…) to suddenly have all the answers.

For a somewhat dated but still quite good introduction to Peak oil theory, check here.  Wikipedia also has a very good page on the subject.


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Category: Current Events, Economy, War

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is a full-time wage slave and part-time philosopher, writing and living just outside Omaha with his lovely wife and two feline roommates.

Comments (14)

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  1. Erich Vieth says:

    Brynn: This issue is ominous, so much so that most politicians refuse to discuss it. I've posted on peak oil several times at this site, and I've also provided additional resources, including this video by Richard Heinberg… . One especially disturbing source of information comes from the petroleum industry itself (see… )

    But also note this October 2009 article by Leonardo Maugeri at Scientific American, in which the author claims that "by 2030, thanks to advanced technologies, wells will be able to extract half of the oil known to be underground, up from the current average of 35 percent. Together with new discoveries, the increased productivity could make oil last at least another century."

  2. Brynn Jacobs says:


    I'm not a subscriber to Scientific American, so I wasn't able to retrieve the full article you link to. One thing I would mention though, there is a group of perennially hopeful people who assert that technology will be able to mitigate the problems of peak oil. I don't know if he mentions a specific technology, or is just placing his blind faith in technology in general, but to date there has been no emergent technology that solves the problem. Rather, most oil field technologies tend to increase depletion rates through more efficient recovery of the existing oil, which only exacerbates the underlying issue- that we are unable to discover enough new oil to keep up with depletion rates, let alone to keep up with demand.

    Perhaps some amazing new technology will reveal itself just as we need it most, but until that time we ought to be planning for the worst-case scenario (which is rapidly becoming the most realistic scenario).

  3. Dan Klarmann says:

    The basic issue is that oil (and coal and methane) are consumed at much higher rates than that at which they can be generated. This is not because we haven't yet discovered a faster mechanism, but a theoretical limit based direct energy measurements. No matter what technology may be discovered, these fuels will run out.

    The short term issue ("peak oil") is that our ability to extract from the dwindling pool is falling behind our rate of consumption. But the pool will run dry.

  4. Brynn Jacobs says:

    The ASPO (Association for the Study of Peak Oil and Gas) has posted a detailed critique of the Scientific American piece. Some choice quotes:

    Maugeri writes : <span style="font-style: italic;">It is absurd to predict a peak of world production because it presupposes that one knows how much oil is in the ground.</span> On that basis, logic suggests that it would be equally absurd to accept Maugeri’s claim that the peak is not coming until 2030 or that more than 50 percent of the oil known at the time will be recoverable.

    Paolo Scaroni, the Chief Executive of ENI, the company for which Maugeri works received the Petroleum Executive of the year 2008 award. He said in the Petroleum Review of March 2006 p25 that replacing reserves is the nightmare of IOCs .
    Scaroni’s words seem to be conflict with Maugeri’s statement that most of the planet’s known resources are left unexploited in the ground, and still more wait to be discovered. Perhaps Maugeri should tell his Chief Executive where all these unexploited and undiscovered oil reserves lie to help ENI replace oil reserves. Its 2008 Annual Report shows that both its oil reserves and production have fallen compared with 2006 but that its gas has increased. It may prompt the cynic to ask if whether Maugeri can distinguish oil from gas.

  5. Erich Vieth says:

    Brynn: I was suspicious of the SciAm piece. It was too rosy, based on most everything else that seemed credible. It did make me stop and wonder whether things are as bad as I'd previously thought, however. I will take a look at the link you provided above.

    I agree with you that we should be developing a plan for what to do–we need to stop focusing on green-washing and truly decrease our dependence on oil. We should put, oh, say at least 10% of the media attention on the Peak Oil issues as we shine onto "balloon boy." Peak Oil makes Afghanistan look trivial by comparison. But we don't operate rationally, it seems.

    We need to soberly consider the possibility of the worst case scenario. I illustrated this issue back in 2006 with a reference to the game of Tetris

    A rational society operates with headroom. It makes certain that when there is any sort of foreseeable incident (such incidents are inevitable), sufficient resources exist to stave off crises. A rational society operates like a Tetris game in the opening stages, where the player has time and resources available to make the necessary adjustments.

  6. Brynn Jacobs says:


    I like the analogy to a Tetris game very much. The "headroom" required to prepare suitable alternatives to our dependence on oil are generally estimated to take several decades. Even if the peak doesn't come for a decade or so, we are already terribly behind.

  7. Brynn Jacobs says:

    Ashley Seager asks in today's Guardian (UK) whether we're getting closer to a Mad-Max sort of scenario.

    An excellent new report, Heads in the Sand, released last week by the non-governmental organisation Global Witness – the group that first brought "blood diamonds" to the world's attention – looked in depth at what is happening to the supply of oil. And it is frightening.The author, Simon Taylor, has spent two years working on this issue, in particular, analysing the forecasts issued late last year by the Paris-based International Energy Agency (IEA), in which it admitted for the first time that world oil supplies were about to start to dwindle just as demand from countries such as India and China is accelerating rapidly. The IEA had previously asserted that oil production would not peak before 2030 at the earliest. Now it thinks we might be very close to that point.The IEA figures showed there could be a gap of 7m barrels a day between supply and demand by 2015. That represents about 8% of the expected world demand by then, 91m barrels a day. The gap will grow as demand keeps growing. Taylor warns that world supply levelled off between 2005 and 2008, so quite where the new oil is going to come from is unclear.Taylor takes issue with the IEA's recommendation that the world spend $450bn (yes, billion) a year looking for new oilfields that may or may not be there and so render its forecasts overoptimistic. He thinks governments should admit they have ignored the problem and don't have a plan B.

    Taylor also argues later in the article that governments must "go hell for leather" for renewable energy resources, although it's probably too late at this point to avoid a "huge energy crunch" in the next decade. Grim.

  8. Stu says:

    There is not much point pouring hundreds of billions of dollars into renewables….why not. Because at best they will only provide a slight extension of the business as usual lifestyle. Think about it..research how much energy goes into making solar panels…where does the energy come from to keep making them after the decline of fossil fuels. Can coal make up for oil decline….for a while…..that will hit a peak to..and coal mining is totally reliant on oil anyway……nuclear… do you mine and refine uranium and build nuclear plants and do all the repairs and replacements required without oil. The fact is that every single "alternative" to fossil fuels or oil… actually a derivative of fossil fuels, and specifically, oil. The fact of the matter is that no matter what we do….business as usual is going to end….our lifestyles are going to change drastically, population will shrink a hell of a lot this century…..there will be war, famine…..a return of disease. Fossil fuels make the production of alternatives possible….you can't even mine coal without oil…..once you could…but all that easy to get stuff is long gone and now you need massive earth moving equipment to get any……this equipment runs on oil…and cannot even be built or maintained without oil. All metals and minerals are extracted via oil use. What oil gave us……the lack of oil will take away…..get used to it. Yes you can fit your house out with thousands of dollars of solar panels….heat pumps……wood burning stove and heater….and bunker down in a rural foresty location …..but can you make yarn……and can you weave that to cloth….and make clothes…….can make you shoes from scratch from the leather off that cow you butchered…..can you make anti venen for that snake or spider bite you get out in the forest……can you fix that broken leg……and can you make anti biotics to stop infection from all the injuries you will have living your survival lifestyle. And can you mine the lead and other metals you will need to build new batteries to keep your solar system going….can you make silicon waffers and turn out solar cells and make them into panels to offset the decline in output from your existing panels…..and if you answer yes to all of the above and more… you can survive… you think your kids and grandchildren are going to have all your vast knowledge and skills as well…..what schools will you send them to when there are none anymore…..think you can work from sun up till after dark to produce enough food and other essentials as well as educate your kids and grand children in the ways of the defunct modern world…..sciences…..metalurgy…medicine….chemistry……mining…..etc etc………lets face it…..its back to the times of old…..complete with those population levels.

  9. Dan Klarmann says:

    Stu obviously misses the point about renewable energy. Once solar, wind, geothermal, and water generation are fully in place, those can be used to produce other portable fuels, such as hydrogen, batteries, and alcohols.

    His misplaced obsession about oil being irreplaceable is probably common. Without education, one has trouble seeing beyond what one is used to. Or apparently how to punctuate.

    Synthetic oils are easier to make from petroleum, but not impossible without. We've had over 10,000 years of urban civilization before fossil fuels, and we will likely have it after.

    Nuclear fuels are also temporary; used wisely they can only last another thousand years or so. Unfortunately, we are only "burning" the easiest 10% of the energy extractable from uranium, and calling the still-usable-as-fuel leftovers "waste". And the technique that can burn this waste (fast neutron reactors) can use more common thorium (as well as uranium) as feedstock. (Whatever Became of Thorium?)

  10. Brynn Jacobs says:

    Jay Hanson argues that only by ditching capitalism, radically changing how we allocate resources, and completely removing special interests from the government can we muster the needed energy or capital to make a relatively peaceful transition to a post-peak world. He claims that by taking these actions we could much more efficiently meet everyone's needs, thereby obviating our need to maintain our current level of resource consumption. If capitalism is collapsing anyway, it may be worth a shot.

  11. Dan Klarmann says:

    Capitalism dying? Only in the same sense that Communism is dying. These are convenient labels for broad categories of social function that actually overlap.

    Robber Baron Capitalism is losing its strength as resources are more widely spread and controlled. Economy of scale evolved and will likely prevail, whether it is imagined to be a product of capitalism (bigger companies eating smaller) or communism (collecting producers under one umbrella for the greater good).

    Fascist Communism with top-down directed commerce falls apart, but the idea of spreading the excess of the richest to aid the poorest is growing in practice here and around the world.

    Watch carefully how the use of fossil fuels in China evolves, and you'll see the future of America. China's main advantage is not the label "Communism" but the lack of our biennial climate of "throw the bums out". A 20 year plan in China can survive that long without significant tinkering. They will probably be smelting on the moon or retrieving asteroidal platinum before us, as long as our national space budget competes annually with every local priority.

    Or maybe capitalism will work, if internet billionaires continue to successfully focus on building space capital.

    Either way, it will be much easier to get true manufacturing into space while we have oil than after it is gone.

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