The catch phrase "Peak Oil" refers to one predominant theory of what
will happen as the world's oil supplies begin to dwindle.
You can read more about it also on Wikipedia.
Apart from the Deep Hot Biosphere types, we all know that there is a
finite amount of rock oil under the earth, and that sooner or later
it will run short or run out. The big questions are when we would
run out, how the situation would look when we ran out, and what
we could do to continue living comfortably come that day. The peak oil
theory was first spelled out in a paper published in 1956 by the oil geologist
M. King Hubbert, who took a probabilistic look at the oil exploration and
extraction process, and with it predicted the way oil supply would act in
To describe the theory in laymen's terms, just start with an analogy to a peach
harvest. You start with the fruit that are large, ripe, and low hanging, and start filling up your baskets. As the day progresses, you move higher and higher up the branches of the tree, reaching for smaller fruit, greener fruit, windfalls, peaches that might be slightly battered, and so on. At some point you walk away from the tree, even though it still has many fruit still there, but which you deem no longer worth your effort. The same applies to oil fields. The geological history of our planet gave us oil fields that are not uniformly distributed, that vary in size, and in content. We began by drilling in areas where oil was seeping out of its own accord. Then we learned to go further and drill deeper. Since then we have developed a whole economy and infrastructure, worldwide, by drawing from the largest oil fields, the ones that were most easily reached, that were most easily drilled, that had the lightest, thinnest oil (and therefore easiest to extract from the ground), that had the "sweetest" oil (a term of art meaning low in sulfur content and therefore easily refined). But as the fields run out one by one, we have to resort to looking for smaller and smaller fields, in harder to reach locations, deeper down, and to settle for denser, thicker oil, with more sulfur to make our life hard. And so gradually, less and less oil will be available for our use, and at higher prices. That is the qualitative summary of the Peak Oil theory.
Hubbert was more quantitative. In his paper,Nuclear Energy and the Fossil Fuels he went through the known estimates of oil reserves of the time, and projecting from ongoing trends in demand for oil and the performance of the oil exploration and production process, predicted a peak and subsequent drop off in American oil production in the early 1970s. (The only math in the paper involves the fundamental theorem of integral calculus.) As related by Kenneth Deffeyes, a Hubbert protege, in his book Hubbert's Peak this paper was presented against fervent pleading by the Shell Oil management, and received with much skepticism by one and all. Then the oil peaked, in 1970. At the time, the signs of peaking oil production were subtle, and noticed mostly in hindsight after the oil shocks in the aftermath of the Yom Kippur War. Such signs included this tidbit from Deffeyes's book:
Hubbert's prediction was fully confirmed in the spring of 1971. The announcement was made publicly, but it was almost an encoded message. The San Francisco Chronicle contained this one-sentence item: "The Texas Railroad Commission announced a 100 percent allowable for next month." I went home and said, "Old Hubbert was right." It still strikes me as odd that understanding the newspaper item required knowing that the Texas Railroad Commission, many years earlier, had been assigned the task of matching oil production to demand. In essence, it was a government-sanctioned cartel. Texas oil production so dominated the industry that regulating each Texas oil well to a percentage of its capacity was enough to maintain oil prices. The Organization of Petroleum Exporting Countries (OPEC) was modeled after the Texas Railroad Commission.6 Just substitute Saudi Arabia for Texas.
The "100 percent allowable" meant that the TRC was authorizing all well operators in Texas to open their valves to full production. This, however, was no longer enough to allow the United States to hold stable the price of oil. Again, to Mr. Deffyes:
With Texas, and every other state, producing at full capacity from 1971 onward, the United States had no way to increase production in an emergency. During the first Middle East oil crisis in 1967, it was possible to open up the valves in Ward and Winkler Counties in west Texas and partially make up for lost imports. Since 1971, we have been dependent on OPEC.
Since then, adherents of the Hubbert school have endeavored to predict the behavior of the worldwide oil sector, and to estimate the day worldwide oil production reaches its peak. This is more difficult to do than what Hubbert did. Hubbert had the advantage of estimating oil reserves in a democratic country, where such data was calculated by publicly traded oil companies that had to answer to outside audits. In the rest of the world, these estimates are done by nationalized companies beholden to domestic politics, national security considerations, and the desire of each OPEC member to inflate its reserve estimate in order to have a higher quota assigned to its production. Another thing is the definition of an oil reserve. Only a portion of the oil in each field can be extracted affordably (both in the financial and thermodynamic sense). But as time went by, technology improved to raise that portion in field after field, to a current neighborhood of 35%. We do know, however, that this portion cannot exceed 100%.
What we do know about the day of peaking worldwide oil production, is what the economic ramifications will look like. When American production peaked, the US was no longer able to adjust its production rates to stabilize the price of oil. Only OPEC could do that. When worldwide production peaks, neither OPEC nor anybody else will be able to manipulate the supply of oil (well, not upwards, anyway) to adjust the price (well, not downwards, anyway). So, once production peaks, the price will be highly unstable. It will be more demand-driven, as competition among oil buyers will intensify. It will also be supply driven. A supply disruption on part of one source will not be compensated by any other source. It will become much more volatile, given to many extreme swings up and down. And it will go up more than it will go down. Then, after the peak, production will inexorably go down, the price will inexorably go up, and we will know that the peak has happened in hindsight. It is the closed nature of much of the oil industry (production figures in Saudi Arabia, Venezuela, Nigeria are currently difficult to extract from anyone who might know them) that requires us to look at past economic figures to see if oil has peaked. This explanation is brought to you by Jim H. Kunstler, in his book The Long Emergency.
With me so far? Good.
Now take a look at the oil market. Fiddle with the chart for long and short views. Play a little with the moving averages. The price has been rising steadily
for two years now, and been increasingly fluctuating week to week and
day to day. We may have reached the oil peak.
The Hubbert theory has plenty of opposition (summarized in Wikipedia). One critique is that innovation in oil extraction technology will increase extraction yields and defer the oil peak to long past our lifetimes. Ironically, the Hubbert theory is more optimistic than the former school. The more efficient we become at depleting each oil field, the less warning we will get from our extraction methods of when the oil is running out. A slow decline in production and increased reliance on lower quality oils has the saving grace that it will give us some level of warning that the oil is running short. This is proven by the rate at which extraction declines from fields depending on the technologies employed. Older oil fields are declining slower than the North Sea oil fields, where oil was extracted using the latest technologies. So like old man Murphy, Hubbert was an optimist.
An important implication to the Peak Oil theory isn't just that supply will stagnate. Demand won't. As other economies develop, so will their thirst for oil, and we First Worlders will have to compete with them for the declining supply, both financially, and maybe militarily. Without increasing production, each of us must prepare for decreasing consumption. The extent to which we rely on oil to enable our way of life is difficult to exaggerate. A decreasing supply of it, therefore has profound and unsettling implications, and introduces problems and challenges that are difficult to face head on.
A common responses to the coming end of oil is to express faith in human
ingenuity as a force for solving any problem in our future. This faith
is directed at two things: research into new technology, and the ability
of the free market to drive more of said research. This faith is misplaced.
99% of progress in technology comes from seeking answers to the following
question: "What new ways are there of using stored energy to perform
physical and intellectual labor?" This is a relatively easy question.
Two much harder questions are "How can we keep doing what we do using
less and less energy?" and "What new sources can we tap for energy?"
These questions are more difficult to answer, and progress into them
has been much slower over the last several decades. They have certainly
not been answered to the point that we could give up oil tomorrow.
The other misdirected recipient of our faith is the free market.
We would like to believe that progress into new energy and more efficient
use thereof is slow merely because not enough money is being put into it.
As the price of oil rises, therefore, more money will go into such research,
more progress will be made, and new technology will then be implemented and
deployed to preserve our way of life. A common slogan is "the stone age didn't end for lack of stones, and the oil age won't end for lack of oil."
This faith is utterly misplaced, and
comes from a misunderstanding of the free market. This institution predates
the invention of bronze. Even stone age tribes know how to barter, and how
to use durable goods of stable value as a medium of exchange. The mechanisms
of the free market are in tune with our psyches, and that makes the free market
a wonderful institution for providing people with the motivation to do
what the rest of humanity wants them to do. The free market can drive people
to try all sorts of things. But whether they succeed depends primarily
on the laws of physics, which the free market cannot defeat. It cannot
drive new discoveries of oil if there isn't any left to discover. It cannot get
people to invent impossible technologies, but it can certainly get people
to try. And people are already trying. Anyone who develops new solutions
to our energy problems stands to gain such astonishing rewards, that it is
ludicrous to think that if these rewards are increased by X amount,
our savior will pop out of the woodwork. The rewards already
go far beyond "fuck you money."
While facile solutions to our energy predicament may emerge,
taking faith in that scenario is foolish. It implies that you believe
in the All Too Convenient Anthropic Principle - the principle that
the laws of nature are tuned not only to cause the emergence of life
on our planet and its evolution to include the appearance of our
species, but also that the laws of nature are conducive and will forever
be conducive to our species enjoying a Western consumerist lifestyle
from now to eternity. Don't count on it. Next articles will cover
just how dependent we all are on the oil economy, why switching to
other sources of energy is a move that is itself dependent on
the oil economy, and what all this means for you.