Peak Oil

What is “Peak Oil”?
Peak oil is the moment at which the maximum rate of global oil production is reached, after which the production rate falls into permanent decline.

Why can’t oil production continue to rise?
Our planet is a finite sphere and we are restricted to a finite supply of fossil fuels and natural resources. The rate of oil production must therefore have a finite upper bound.

Most of the large easy to reach oil fields have already been found, and much of the oil from these fields has already been extracted and consumed.
There is certainly more oil left to be discovered, but at deeper depths and in smaller volumes. Future discovery will be more difficult, time consuming, risky and energy intensive i.e. expensive. As oil becomes less economically viable to extract, and as the EROEI (Energy Returned on Energy Invested) approaches 1:1 (that is to say, each barrel of oil produced costs a barrel of oil to produce it), conventional oil production, for the purpose of using oil for energy, will simply cease.

Who conceived of “Peak Oil”?
In the 1950s the U.S. geologist M. King Hubbert supposed that global oil production would at some point peak. He noted that rates of production for individual oil fields typically followed a bell shaped curve. He extrapolated this property and concluded that oil production at the national and international scale must follow this same pattern. He predicted:

• that oil production in the US would peak in the 1970s – it did
• global oil production would peak around the year 2000 – so far it looks like he was at least 8 years off

When will “Peak Oil” occur?
Unless the rate of crude oil production subsequently passes 82.88 million barrels of oil per day, “Peak Oil” occurred on July 11th 2008. A growing number of oil industry experts, geologists and scientists do not expect oil production to rise above this level again.
There has not been a full audit of the world’s reserves so we cannot be sure that we are past the peak. But given the severity and length of the current economic crisis, a lack of current investment, and delays in further capital investments in further oil discoveries make July 11th 2008 the likely “Peak Oil” date.

Why does it matter?
Our economic system and way of life is pretty much entirely dependent on oil. As a society we use on average 10 calories of fossil fuels to provide 1 calorie of food in the supermarket. Oil accounts for over 40% of the world’s total fuel consumption and 95% of global energy used for transportation. Oil forms the basis of many everyday components and household items, plastics, tyres, cleaning products, paints, fertilizers, ipods and many more. A world with declining oil production is therefore a world with less of many of the things we take for granted.

When the rate of production begins its inevitable decline, it will matter because demand will not be met by supply, the price of oil goes up, the economy contracts, demand wanes, the price goes down, the economy “tries” to recover, demand goes up, the price goes up and so on. In this sense, not only will this mean the price of oil and cost of energy going up in the long term, but it will mean volatile oil price movements due to inelastic demand.

Will it affect the economy? Our government and economists know what to do right?
The short answer is Yes and No.

“If one were to ask a physicist or chemist or engineer about how something was made in our society they would probably begin with analysis of the resources required for its manufacture and then the energy required for that manufacturing. But economists, in their Cobb-Douglass production functions, use only capital and labor: P = f (K,L), and sometimes not even labor.”
Source: theoildrum.com

As our very economic system has depended upon cheap and abundant energy for so long, it has allowed for an increase in social complexity (public spending on consumption). Most people in society have become accustomed to their way of life and the welfare systems that support them, and it is naturally difficult for people, and economists too, to let go of the system and assumptions they are accustomed to. The trends in economic growth and social complexity have unfortunately fooled economists into believing that economic growth is a given, which risks leading them to make incorrect assumptions and foolhardy policy decisions as we begin our “energy descent”.

Most economists see our planet, environment and finite resources as a subystem of economics instead of the other way around. Many think that the economy is powered by money, and the creation of money. They are of course wrong, our system operates within the context of our natural environment and the laws of physics. In particular the laws of thermodynamics, and geological constraints (peak oil) put a limit on the amount of “work” that can be done in an economy. In essence, economists (in particular the dominant Keynesians of today) have come to the incorrect conclusion that they are operating the levers of a perpetual motion machine. This can be dangerous as economists attempt to resuscitate growth as money, capital and precious resources are wasted on stimulating economies that may refuse to be stimulated, further bloating sovereign debts and deficit spending, and sabotaging possible investment that could otherwise be used to tackle more serious problems (like the effects of peak oil or building sustainable infrastucture for the future).

In a world post peak oil, very large and painful economic recessions are inevitable. And unfortunately interference by economists, and further defecit spending, are likely to make the recessions larger and deeper by encouraging malinvesment instead of letting the recessions take their course, allowing the economy to adjust.

Hopefully more economists will start to “get it”, until then it is a battle between Nobel prize winning egos and finiteness, between economic growth (“exponential curve”) and peak oil (“bell shaped curve”).

Can’t we use other energy sources?
We can, but theses other sources just don’t match oil in terms of Net energy and Energy Returned on Energy Invested. We could help by migrating our transport systems to something that is prodominantly powered by electricity, but we are fast running out of time. Replacing a billion combustion engines is not something that can be done overnight. Installing electric plugin infrastructure will take time, building the extra power plants required will all take a lot of time and energy.

Can’t we rely on technological advances?
About the only thing that could help is the revelation that the Pentagon has “free energy” technology and known about it for years. But this forlorn hope is the stuff of science fiction fantasy.

How will it affect me?
We can’t really predict the future. But you may notice that the cost of living goes up, energy prices rise, food prices rise, and if the government introduce price controls there may be periods of shortages and rationing. You will have to get used to consuming less, and using less energy, spending more time living and working locally. This will be a positive change for a lot of people.

How will it affect society?
There are many possible futures that lie ahead of us. Hopefully there will be a peaceful outcome, particularly if awareness of the problems are raised early and we work together as communities with an understanding of the problems that lie ahead of us. If there isn’t the critical mass of understanding and awareness, community spirit and helpfulness, then there could be social unrest. If governments do not cooporate with each other, resource wars may break out (wasting yet more energy) as they compete for resources in an attempt to sustain our way of life.

How can I prepare?
You’ve already started. Plant a garden, get to know your neighbours, help out with local projects, share energy saving and money saving tips and ideas, be frugal.