Researchers Argue Peak Oil Is Here, Bringing Permanent Volatility
The global production of oil has remained relatively flat since 2005 and peaked in 2008, declining ever since even as demand has continued to increase. The result has been wild fluctuations in the price of oil as small changes in demand set off large shocks in the system.
In Wednesday’s issue of Nature, James Murray of University of Washington and David King of Oxford University argue this sort of volatility is what we can expectgoing forward, and we’re likely to face it with other fossil fuels as well.
The notion of peak oil is fairly simple: Oil is a finite resource and at some point we simply won’t be able to extract as much as we once did. There is no getting around that limit for any finite resource. The issue that has made peak oil contentious, however, is the debate over when we might actually hit it. Murray and King are not the first to conclude that we’ve already passed the peak. Even as prices have climbed by about 15 percent per year since 2005, production has remained largely flat.
The strongest argument against this being a real peak is the increasing volume of petroleum reserves many countries are reporting. Even assuming those estimates were reliable (which Murray and King aren’t certain of), those reserves clearly have not brought increased production. In the United States, for example, production as a percentage of total reserves has dropped from 9 percent to 6 percent during the last three decades.
“We are not running out of oil,” the authors argue, “but we are running out of oil that can be produced easily and cheaply.”
This creates significant delays before new reserves can be tapped, and limits the amount of oil that can be economically extracted from them. Non-conventional sources like oil sands have the potential to contribute to the global supply but so far haven’t done so and current production estimates indicate they won’t anytime soon.
The struggle to mobilize supplies has taken place against a backdrop of falling production and rising demand. Most established sources of oil are seeing declines in the area of 5 percent annually. Given that decline, it will be extremely difficult to meet demands projected for 2030 — in fact, we’d have to add the equivalent of our total current production. In a fit of understatement, the authors deem this “very unlikely to happen.”
What are the consequences of being stuck at or near peak oil? The authors have produced a graph showing that, while supply is elastic enough to meet demand, prices stay stable. Once demand consistently exceeds supply, prices swing wildly. Murray and King term this a “phase transition” and suggest we’ll be in the volatile phase from here on out.
That has some significant consequences. Of the 11 recessions the United States has experienced since World War II, 10 have been preceded by a sudden change in oil prices. The United States isn’t alone, either. Italy’s entire trade deficit, which has contributed to its financial troubles, can be accounted for by the rise in imported oil. The world, it seems, has allowed its economies to become entirely dependent upon fossil fuels.
“If oil production can’t grow, the implication is that the economy can’t grow either,” the authors write. “This is such a frightening prospect that many have simply avoided considering it.”
And it’s not just oil that poses problems. U.S. coal production peaked in 2002, and the global peak has been predicted to hit as soon as 2025. The last time global coal reserves were evaluated, in 2005, the total was cut by more than half compared to previous estimates. Fracking has boosted the production of natural gas dramatically, but even here the authors find reasons for concern. Recent reports suggest shale gas reserves have been overestimated, and many fields that have been in production awhile have experienced large declines in production.
The commentary concludes that we simply can’t rely on any fossil fuel to provide a stable and economic source of energy for more than a couple of decades. And, given the economic shocks that result from rapid changes in energy prices, that’s a serious problem.
“Economists and politicians continually debate policies that will lead to a return to economic growth,” the authors note. “But because they have failed to recognize that the high price of energy is a central problem, they haven’t identified the necessary solution: weaning society off fossil fuel.”
This weaning will require a large deployment of efficiency measures, nuclear power and renewable energy sources. This will take time, which is why efforts need to be started now, the authors argue. (Not mentioned, but equally true, is the probability that taking these measures will smooth out the impact of reaching peak fossil fuel production.) Unfortunately, since most governments are unwilling to admit the prospect of indefinite economic stagnation due to our reliance on fossil fuels, they’ve been unable to generate the political will to even begin these efforts. Murray and King clearly hope their commentary will help get the ball rolling.
By John Timmer, Ars Technica