The trickle of Peak Oil articles has turned into a flood recently.  First came the chief economist for the International Energy Agency (IEA), Dr. Fatih Birol, with the shocking announcement that “My main motto never changes, the era of low oil prices is over.”  Then there were the whistleblowers at the IEA who alleged that the IEA’s rosy forecasts of rising production timed perfectly to satisfy rising demand had been rigged at the request of the United States.  “We have entered the Peak Oil zone. I think that the situation is really bad,” one whistleblower said.  Then, Warren Buffet made his “all-in” wager on rail transportation. Now, even the Wall Street Journal has capitulated.  Last week, they ran a front-page story titled “Oil officials see limit looming on production“.  The actual Wall Street Journal site requires a subscription, but it has been mirrored a number of places online if you’re interested.  The first paragraph of the story reads:

A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.

And that, ladies and gentlemen, is “peak oil”.  The world has reached the point at which production cannot increase, regardless of the price.  Oh sure, the Journal hastens to add that this is definitely not the “often derided notion known as the peak-oil theory”, and that “the world certainly won’t run out of oil any time soon.”   Hmmm, I wonder why they create such a straw-man?  Peak Oil theory has never been about “running out of oil”.  Matt Savinar (oft-derided peak-oil theorist) points out  that “The issue is not one of “running out” so much as it is not having enough to keep our economy running.”   This point notwithstanding, the Journal goes on to describe effects synonymous with peak oil, all while stressing that peak oil is not occurring.  They describe the inability of big oil to increase production despite “several years of bull-market prices”, and warn of “temporary shortages” and “debilitating price spikes” amid mounting uncertainties about the feasibility of “non-conventional oil supplies”.

Peak-Oil theorists also argue that as we move towards harvesting these “non-conventional” oil supplies, the energy return on energy invested (EROEI) declines.  Michael Lardelli explains:

Since 60 per cent of the energy in our world economy comes from burning the hydrocarbons oil and gas, a decline in their availability will reduce world economic activity. In fact, we face twin, compounding challenges. Not only are hydrocarbons in decline, but the energy required to extract and process these hydrocarbons is steadily increasing. This is reducing the “net energy” from hydrocarbon production – less and less of the energy produced by hydrocarbon extraction is available to do other things (such as power the economy) and more and more of the energy production is being recycled back into the process of producing the energy itself.

The Wall Street Journal articles proves this point:

High oil prices have also led to steep cost inflation for drilling rigs and other equipment. Costs have soared so much that the industry is falling behind in the investment needed to sate expected future demand. To meet demand forecasts of 90 million barrels of oil a day in 2010, the industry needed to have spent $350 billion on drilling and producing in 2005, argues Larry G. Chorn, chief economist of Platts, the energy and commodities-information division of McGraw-Hill Cos. But the International Energy Agency estimates that spending on oil-field production in 2005 came to only about $225 billion, he says.

So let’s review– here are the points of agreement that are now shared between Peak Oil theorists and Peak-Oil denying Wall Street Journal:

• Oil production has reached a plateau- nobody knows how production can increase from this point.
• Even a huge run-up in prices over the last few years has proven insufficient to increase production.
• Most of the world’s big oil fields have already been found.
• The remaining oil supplies are proving expensive and difficult to extract.  The “low-hanging fruit” has already been picked.
• The inability of production to keep pace with demand means highly volatile prices, shortages, and economy-wrecking price spikes.

I’m hard-pressed to find where the Journal’s article diverges from standard peak-oil theory.   Maybe they’ll cover that in a follow-up story.

Some other stories of interest lately on the subject:

• Deutsche Bank released a report for their clients entitled “The Peak Oil Market: Price dynamics at the end of the Oil Age“.  They argue that demand will actually peak in 2016 as a result of the adoption of new technology, namely the electric car.  Expect price volatility in the meantime, and they forecast a final oil price spike of $175/bbl which will “drive a final stake into long-term oil demand”.
• The U.S. is expanding its network of bases and plans for full-spectrum domination in South America.  Coincidentally (yeah, right), South America is one of the last places on the planet with easily accessible oil.  See this also.
• Forbes indicates that oil at $80/bbl is already a problem.   Once households spend about 6% of their budgets on energy, demand destruction ensues.  6% of the budget implies gas prices around $3.00/gallon, a level which is approaching again.
• Similarly, others have argued that the economy in the U.S. cannot tolerate spending more than about 5-6% of GDP on oil.
• Taken together, these last two points are also a vindication of Peak-Oil theory.  Peak oil theorists have suggested these limits for years, and now the data support the hypothesis.  Once spending on energy reaches a certain level, spending on discretionary purchases necessarily gives way, causing economic damage.  The downturn in the economy reduces demand for oil, but as the economy recovers, demand rises again.  Since the GDP base has been lowered as a result of the downturn, the implied oil price at which economic activity is slowed is reduced also, and the cycle repeats.  (see here also)
• Similarly, Cuba is facing an energy crisis and has ordered “extreme measures” to cut energy use. Expect to see these types of measures becoming more common as the “long descent” of the age of oil begins in earnest.  Blackouts, brownouts, and rationing may all become part of the solution.  These blackouts may not always be intentional, especially as spending on the infrastructure is constrained as a result of increased spending on the energy itself.
• A blogger who goes by the title “Peak Oil hausfrau” has posted her list of the top 10 euphemisms for peak oil.  You can already see some of these in the media, especially the “lack of spare production capacity” and “demand destruction”. I would also add the numerous references I’ve seen which call it “lack of excess capital” or “lack of investment”.  Peak oil by any other name is still as toxic.  The bottom line is that oil becomes non-viable economically.

Finally, I’ll leave you with a few words from Chris Nelder:

It may be the most heinous dereliction of duty ever witnessed in the history of democracy, but that’s where we stand in North America. While the UK, Australia, and New Zealand continue to work hard on contingency plans for an oil emergency, we remain in widespread institutional denial, complacent that our fuel supply will be assured by the wise hand of Mr. Market.

We don’t need no stinking plans. Panic buying and hoarding — pshaw! We’re going to do the job the free market way, through voluntary demand reduction and switching fuels! Remember how the financial markets worked so much better after the Phil Gramm era of deregulation?

If a supply interruption event should happen, and farmers can’t get fuel to plant their crops when the seasons dictate. . . well, the resulting food shortages and price spikes will simply have to be the cost of doing business in a free market system. And if oil and gas companies, airlines, trucking companies, farmers (and, well, just about everybody), can’t swing with increasingly frequent fuel price spikes and crashes — then I guess we don’t need them.

Our government’s blithe laissez faire attitude toward the threats of fuel shortages and grid attacks may be intellectually comforting to free market champions, but I’m willing to bet that should such events seriously compromise national security, they’d turn authoritarian in a heartbeat. . . and that includes me.

After seeing these presentations my first thought was: This is utter insanity. We need to nationalize the grid and prepare for deliberate fuel rationing ASAP.

It’s not that the government doesn’t know about peak oil. Some of the most important studies on the subject and on its likely effects have been produced there. Indeed, Pugh asserted that the military definitely gets peak oil because “they’re paying for fuel in money and blood daily.” Their primary focus is on using it more efficiently, he said, but they don’t worry about shortages because “there’s always going to be enough oil for the military.”

I’m sure that’s true. But I’m not at all sure it’s something we want to test.