Is it peak oil yet?

The BP oil spill, April 20, 2010. Public domain image from the U. S. Coast Guard.

Is peak oil here? Yes! Peak oil has finally arrived! I’m hardly alone in raising this issue; Gail Tverberg, Art Berman, Kurt Cobb, and Alice Friedmann (and at this point probably many others) are expressing similar concerns.

Wait a minute, it has PROBABLY arrived. Allow me to explain.

Peak oil — the maximum point of world oil production — is a very big deal. It will very likely signal the end of economic growth, because oil is the key energy source in the country. Thanks to the pandemic, we are approaching a global depression, if we are not already there. But thanks to peak oil, not only will things not go back to “normal” soon, they will never go back to normal.

When I attended the first national peak oil conference in Denver (sponsored by ASPO-USA) in 2005, the informed consensus opinion seemed to be that oil would peak between 2005 and 2015. But, despite the 2008 oil price spike and the Great Recession, that didn’t happen. Oil production continued to increase, although rather sluggishly.

But these marginal increases in oil production have come about only as a consequence of environmentally damaging and increasingly costly unconventional oil, most notably the so-called “shale revolution” (fracking). Oddly, this increase in fracking has not been driven by profits. Shale is a financially losing proposition, and in fact has been losing money from the beginning in about 2008. Yet investors continued to pour money into it, hoping that it would be the “next big thing.”

Their interest in continuing to lose money, though, was starting to wane even before the pandemic, and it seemed that we had reached a “peak oil” moment. “The North American oil market has been grossly overcapitalized,” we are looking at “The Great American fracking bust,” and “We are sitting on the top of an unexploded bomb [corporate debt binge].”

And then the pandemic hit.

“Hubbert’s pimple”: the insignificance of the oil age.

2018 was likely the year of peak oil. The classic peak oil arguments are still basically correct. We have to discover oil before we can extract it; and oil discoveries have been declining for about 50 years. Peak oil “should” have occurred in 2008, at the outset of the Great Recession. The reason it didn’t occur until about a decade later has little to do with drilling technology or economics. Rather, it has to do with politics.

As long as it is physically possible to continue producing oil, oil will be extracted regardless of what it costs, if there is the political ability and desire to do so. The whole economy hinges on oil, and a lot of rich people will lose money if oil declines. Political leaders could attempt a variety of policies to increase oil extraction. Bush tried invading Iraq; Obama opted for bailing out the banks and “quantitative easing”; Trump is diligently cutting back those pesky environmental regulations. In an extreme case, the President could send in troops to the oil fields to keep them pumping. None of this truly reduces the cost of oil; it just shifts the costs to someone else or to the future.

It’s hard to see how we could successfully prop up the oil industry. OK, President Trump seizes power and sends in the troops to insure that oil extraction increases. Really? Even if that happened and everyone acquiesced, the economy is in the toilet, there is at least 14% unemployment and rising, and the average RELATIVE wage — your salary compared to the GDP — has been declining for decades. This still doesn’t sound like an economy that is “roaring back.” At best, it sounds more like a submissive population unable to resist overbearing elites. This is not a formula for inspiring public economic confidence. It is probably already politically impossible to continue propping up the oil business.

I have one small doubt. What about the Green New Deal? Suppose that the Democrats sweep to power with overwhelming majorities. With a surge of popular enthusiasm, they enact legislation to get the nation to 100% renewable energy within a decade. THAT might do the trick. This would be highly ironic, because the Green New Deal is intended to build alternatives to fossil fuel. By going on a massive spending and building spree, with government support and popular enthusiasm, we might get a temporary increase in oil production and consumption.

The Green New Deal and 100% renewables for the United States (much less the world) seems unlikely in the near future. It would require a sudden onset of extraordinary political unity. Moreover, people need to be warned that this path, however necessary, will leave us a lot poorer, and unless we start reforesting grazing lands it won’t even work — in fact, it would make the climate crisis worse! Look before you leap: we should have realistic expectations about what a renewable economy would look like.

In any event we seem to have reached peak oil. The immediate cause is not declining oil reserves or the failure of fracking techniques. It is a political failure. Peak oil will not be the cause of limits to growth, but a consequence of limits to growth. This is the reality, triggered by the pandemic, which has newly descended upon us.

8 Replies to “Is it peak oil yet?”

  1. I don’t think so. I think we are still about a decade out. By the way, it more correctly is “Peak carbon fuel consumption.” If it oil or natural gas or coal,or wood, burning carbon fuels Is the issue. The long term stability and sustainability of the ecosystem is going to require us to stop all burning of carbon fuels for centuries. The current capitalist system is hooked on oil and gas and it will take a major change n the world’s economy to make this change. I think Gaia just gave us a nudge ( pandemic). I think it will take several increasingly hard nudges to get enough people’s attention to make this change.

    1. You are right that peak carbon fuel consumption will probably not peak for a while, perhaps a decade or even longer. The reason I raise the question of oil, as opposed to coal, wood, etc., is that there is quite a bit of literature, both popular and technical, specifically on oil, and even organizations (like the former ASPO-USA group, now dissolved) devoted to the subject. Even with “peak oil” there is disagreement about what exactly “oil” is (are “natural gas liquids” oil, for example), so different answers can be given to the same question.

    2. “It will take a major change in the world’s economy to make this change.” Yes, exactly. I am looking at the problem from the opposite angle: instead of “what do we need to do to change the system?”, I’m asking “what changes would we need to keep the current system going?” It’s theoretically possible, but I’m trying to figure out a plausible political scenario in which this happens.

      If our glorious free enterprise system continues and it’s all done by economics and supply-and-demand, then, as Art Berman says, “Game over for oil, the economy is next.” We could have a right-wing fantasy in which President Trump cancels the elections, seizes power, and orders the troops to keep pumping oil. This is possible, but I just don’t see how it would restart the economy, even if the pandemic ends. Then there’s the left-wing fantasy in which overwhelming Democratic majorities aggressively push through the Green New Deal, which I discussed in the blog, but this seems unlikely at this point.

      I am trying to visualize a political scenario in which oil production exceeds the 2018 levels. This has to mean an increase in fracking, tar sands, heavy oil, or maybe even coal-to-oil. All of these only postpone the day of reckoning, are disastrous for the climate, and do nothing to boost public confidence in our corrupt, decaying system. Thus, economic collapse is in the cards. I didn’t talk about this in my blog because the whole question of “collapse” raises some more issues, I’ll talk about that in a future post.

      1. Scientists avoid discussion about the role of animal agriculture in climate change, ignoring the ethical debate altogether. Administrators of online climate change forums have deleted my comments or banned me for even mentioning animal rights and agriculture in the context of climate change. It’s as if they think the immorality of animal agriculture should not be a consideration in prioritizing its elimination as a cause of global warming. So, there’s a big problem in town with houses burning down. Among the causes is an arsonist; but the mayor, police chief and fire marshal aren’t terribly interested in his arrest. After all, he’s only part of the problem! I feel the same about the role of capitalism in all the problems we discuss here. It’s inherently immoral and needs to go anyway – let’s push for its elimination!

  2. Yeah but they will start calling you Michael Moore. The environmentalist narrative is that GND will save the earth and its economy. People gonna be mad at Mr. Keith.

  3. Between politics, pandemics and physical limits, it sounds like we could see an undulating plateau lasting a decade or more. What comes after the long-term peak? Gradual replacement of fossil fuels with efficiency, renewables and nuclear under a Green Tech scenario, arguably led by Vegan Green Tech? A more rapid Energy Descent? Or full-blown Collapse? All of the above as the performance profiles of UN member states diverge – or will a tendency toward convergence win out?

    With AOC and John Kerry front and center on Biden’s climate team, a Biden win and Senate flip could put the US on a GND pathway as early as 2021. Alternatively, Republicans are sure to increasingly promote a National Energy Security Strategy that overlaps with the GND on key elements. Regardless of the 2020 election outcome, a pragmatic middle may soon take the lead on US energy policy.

    1. As the saying goes: “predictions are difficult, especially about the future.” There are too many interlocking imponderables here to really make predictions. “Undulating plateau” is one option, but how would we get there?

      The problem, as I tried to make clear in my blog, is that if we go strictly with our glorious free enterprise system, oil should have peaked about a decade ago. As far as I can see, oil production has been kept afloat only through politics. There’s also investment hype, but I think that that there’s an element of political calculation even in the investment decisions: “our leaders won’t let the oil industry collapse.” Politics has meant easy credit under Obama and reduced regulation under Trump, and a lot of rich people willing to invest.

      But now there’s a pandemic (still ongoing!) and unemployment is about 15% and rising. I am trying to envision a political scenario in which incentives to pump a lot of oil would reappear somewhere. With politics so deeply divided, it’s easier to foresee one extreme or the other taking power than the “pragmatic middle,” thus my speculation about the Green New Deal. We need eager buyers, but if everyone’s broke, who wants oil? I’m certainly not driving very much, and it’s going to take one truly massive jobs program to get the economy going again.

      1. Yes, we will have to wait and see whether demand side and supply side factors converge to give us some post-2018 undulation. It is certainly possible to argue that a classical free market approach to oil development tends more to delay the production peak than advance it. And communists, of course, use oil, too. World population is still growing, especially in Africa, where Pew predicts an increase from 1.3 billion in 2020 to 4.3 billion by 2100. Perhaps population growth will not be this strong; perhaps the African Union will forsake fossil fuels to follow a zero-carbon development pathway; perhaps they will not be able to afford competitively priced oil in any case. Then there is all of the energy required to convert existing global built and natural capital to a sustainable footprint (massive energy requirement and massive jobs program). As conditions stand, there are some reasons to suspect that demand for oil will both rebound and continue to grow.

Comments are closed.