Should we Still be Concerned with Peak Oil?

By Dave Cohen | Mon, 25 June 2012 22:05 | 0

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 pipe dream.

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