Guest Post: Peak Denial About Peak Oil

Tyler Durden's picture

Submitted by Jim Quinn of The Burning Platform

Peak Denial About Peak Oil

It is par for the course that with oil hovering between $70 and $80
per barrel Americans have continued to buy SUVs and Trucks at a rapid
pace. Politicians don’t have constituents screaming at them because gas
is $4.00 per gallon, so it is no longer an issue for them. They need to
focus on the November elections. It is no time to discuss a difficult
issue that requires foresight and honesty. It is no time to tell the
American public that oil will be over $200 a barrel within the next 5
years. Anyone who would go on CNBC today and declare that oil will be
over $200 a barrel would be eviscerated by bubble head Bartiromo or
clueless Kudlow. Bartiromo filled up her Escalade this morning for $2.60
a gallon, so there is no looming crisis on the horizon. The myopic view
of the world by politicians, the mainstream media and the American
public in general is breathtaking to behold. Despite the facts slapping
them across the face, Americans believe cheap oil is here to stay. It is
their right to have an endless supply of cheap oil. The American way of
life has been granted by God. We are the chosen people.

A funny thing happened on our way to permanent prosperity and
unlimited cheap oil. The right to prosperity was yanked out from
underneath us by the current Greater Depression. The worldwide economic
downturn has masked the onset of peak cheap oil. Therefore, when it hits
America with its full fury, it will be a complete surprise to the
ignorant masses and the ignorant politicians who run this country. A
Gallup Poll in August asked Americans about our most important problems.
Where is the concern about future energy supplies? It isn’t on the
radar screens of Americans. They are probably more worried about whether
The Situation will hook up with Snookie on the Jersey Shore reality
show.

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It is not surprising that the American public, American politicians,
and the American media don’t see the impending crisis. The organizations
that have an interest in looking farther than next week into the future
have all concluded that the downside of peak oil will cause chaos
throughout the world. The US Military, the German Military, and the UK
Department of Energy have all done detailed studies of the situation and
come to the same conclusions. Social chaos, economic confusion, trade
barriers, conflict, food shortages, riots, and war are in our future.

http://www.acus.org/docs/051007-Hirsch_World_Oil_Production.pdf

The U.S. was warned in 2005. Its own Department of Energy
commissioned a report by Robert Hirsch to examine peak oil and its
potential consequences to the US. The introduction stated:

“The peaking of world oil production
presents the U.S. and the world with an unprecedented risk management
problem. As peaking is approached, liquid fuel prices and price
volatility will increase dramatically, and, without timely mitigation,
the economic, social, and political costs will be unprecedented. Viable
mitigation options exist on both the supply and demand sides, but to
have substantial impact, they must be initiated more than a decade in
advance of peaking.”

The main conclusions reached by the experts who worked on this report were:

  1. World oil peaking is going to happen, and will likely be abrupt.
    World production of conventional oil will reach a maximum and decline
    thereafter.
  2. Oil peaking will adversely affect global economies, particularly the
    U.S. Over the past century the U.S. economy has been shaped by the
    availability of low-cost oil. The economic loss to the United States
    could be measured on a trillion-dollar scale. Aggressive fuel efficiency
    and substitute fuel production could provide substantial mitigation.
  3. The problem is liquid fuels for transportation. The lifetimes of
    transportation equipment are measured in decades. Rapid changeover in
    transportation equipment is inherently impossible. Motor vehicles,
    aircraft, trains, and ships have no ready alternative to liquid fuels.
  4. Mitigation efforts will require substantial time. Waiting until
    production peaks would leave the world with a liquid fuel deficit for 20
    years. Initiating a crash program 10 years before peaking leaves a
    liquid fuels shortfall of a decade. Initiating a crash program 20 years
    before peaking could avoid a world liquid fuels shortfall.
  5. It is a matter of risk management. The peaking of world oil
    production is a classic risk management problem. Mitigation efforts
    earlier than required may be premature, if peaking is long delayed. On
    the other hand, if peaking is soon, failure to initiate mitigation could
    be extremely damaging.
  6. Economic upheaval is not inevitable. Without mitigation, the peaking
    of world oil production will cause major economic upheaval. Given
    enough lead-time, the problems are soluble with existing technologies.
    New technologies will help, but on a longer time scale.

The Hirsch Report clearly laid out the problem. It urged immediate
action on multiple fronts. It is now 5 years later and absolutely
nothing has been done. In the meantime, it has become abundantly clear
that worldwide oil production peaked between 2005 and 2010. The Hirsch
Report concluded we needed to begin preparing 20 years before peak oil
in order to avoid chaos. We are now faced with the worst case scenario.

http://www.fas.org/man/eprint/joe2010.pdf

The US Military issued a Joint Operating Environment report earlier
this year. They have no political motivation to sugarcoat or present a
dire picture. This passage is particularly disturbing:

A severe energy crunch is inevitable
without a massive expansion of production and refining capacity. While
it is difficult to predict precisely what economic, political, and
strategic effects such a shortfall might produce, it surely would reduce
the prospects for growth in both the developing and developed worlds.
Such an economic slowdown would exacerbate other unresolved tensions,
push fragile and failing states further down the path toward collapse,
and perhaps have serious economic impact on both China and India. At
best, it would lead to periods of harsh economic adjustment. To what
extent conservation measures, investments in alternative energy
production, and efforts to expand petroleum production from tar sands
and shale would mitigate such a period of adjustment is difficult to
predict. One should not forget that the Great Depression spawned a
number of totalitarian regimes that sought economic prosperity for their
nations by ruthless conquest.

Here is the summary of their analysis:

To generate the energy required worldwide by the 2030s would require us to find an additional 1.4 MBD every year until then.

During
the next twenty-five years, coal, oil, and natural gas will remain
indispensable to meet energy requirements. The discovery rate for new
petroleum and gas fields over the past two decades (with the possible
exception of Brazil) provides little reason for optimism that future
efforts will find major new fields.

At
present, investment in oil production is only beginning to pick up,
with the result that production could reach a prolonged plateau. By
2030, the world will require production of 118 MBD, but energy producers
may only be producing 100 MBD unless there are major changes in current
investment and drilling capacity.

By
2012, surplus oil production capacity could entirely disappear, and as
early as 2015, the shortfall in output could reach nearly 10 MBD.

Energy
production and distribution infrastructure must see significant new
investment if energy demand is to be satisfied at a cost compatible with
economic growth and prosperity. Efficient hybrid, electric, and
flex-fuel vehicles will likely dominate light-duty vehicle sales by 2035
and much of the growth in gasoline demand may be met through increases
in biofuels production. Renewed interest in nuclear power and green
energy sources such as solar power, wind, or geothermal may blunt rising
prices for fossil fuels should business interest become actual
investment. However, capital costs in some power-generation and
distribution sectors are also rising, reflecting global demand for
alternative energy sources and hindering their ability to compete
effectively with relatively cheap fossil fuels. Fossil fuels will very
likely remain the predominant energy source going forward.

Just this week, the German magazine Der Spiegel obtained a
confidential study about peak oil that was done by the German military.
According to the German report, there is “some probability that peak oil
will occur around the year 2010 and that the impact on security is
expected to be felt 15 to 30 years later.” The major conclusions of the
study as detailed in Der Spiegel are as follows:

  1. Oil will determine power: The Bundeswehr
    Transformation Center writes that oil will become one decisive factor in
    determining the new landscape of international relations: “The relative
    importance of the oil-producing nations in the international system is
    growing. These nations are using the advantages resulting from this to
    expand the scope of their domestic and foreign policies and establish
    themselves as a new or resurgent regional, or in some cases even global
    leading powers.”
  2. Increasing importance of oil exporters: For
    importers of oil more competition for resources will mean an increase in
    the number of nations competing for favor with oil-producing nations.
    For the latter this opens up a window of opportunity which can be used
    to implement political, economic or ideological aims. As this window of
    time will only be open for a limited period, “this could result in a
    more aggressive assertion of national interests on the part of the
    oil-producing nations.”
  3. Politics in place of the market: The Bundeswehr
    Transformation Center expects that a supply crisis would roll back the
    liberalization of the energy market. “The proportion of oil traded on
    the global, freely accessible oil market will diminish as more oil is
    traded through bi-national contracts,” the study states. In the long
    run, the study goes on, the global oil market, will only be able to
    follow the laws of the free market in a restricted way. “Bilateral,
    conditioned supply agreements and privileged partnerships, such as those
    seen prior to the oil crises of the 1970s, will once again come to the
    fore.”
  4. Market failures: The authors paint a bleak picture
    of the consequences resulting from a shortage of petroleum. As the
    transportation of goods depends on crude oil, international trade could
    be subject to colossal tax hikes. “Shortages in the supply of vital
    goods could arise” as a result, for example in food supplies. Oil is
    used directly or indirectly in the production of 95 percent of all
    industrial goods. Price shocks could therefore be seen in almost any
    industry and throughout all stages of the industrial supply chain. “In the medium term the global economic system and every market-oriented national economy would collapse.”
  5. Relapse into planned economy: Since virtually all
    economic sectors rely heavily on oil, peak oil could lead to a “partial
    or complete failure of markets,” says the study. “A conceivable
    alternative would be government rationing and the allocation of
    important goods or the setting of production schedules and other
    short-term coercive measures to replace market-based mechanisms in times
    of crisis.”
  6. Global chain reaction: “A restructuring of oil
    supplies will not be equally possible in all regions before the onset of
    peak oil,” says the study. “It is likely that a large number of states
    will not be in a position to make the necessary investments in time,” or
    with “sufficient magnitude.” If there were economic crashes in some
    regions of the world, Germany could be affected. Germany would not
    escape the crises of other countries, because it’s so tightly integrated
    into the global economy.
  7. Crisis of political legitimacy: The Bundeswehr
    study also raises fears for the survival of democracy itself. Parts of
    the population could perceive the upheaval triggered by peak oil “as a
    general systemic crisis.” This would create “room for ideological and
    extremist alternatives to existing forms of government.” Fragmentation
    of the affected population is likely and could “in extreme cases lead to
    open conflict.”

Even the International Energy Agency, which has always painted a rosy
picture of the future, has even been warning about future shortages due
to lack of investment and planning.

http://www.worldenergyoutlook.org/docs/weo2009/WEO2009_es_english.pdf

Americans think that the discovery of oil on our soil in 1859 has
entitled us to an endless supply. It is not so. We account for 4.3% of
the world’s population but consume 26% of the world’s oil. As China,
India and the rest of the developing world become economic powerhouses,
they will consume more and more of the dwindling supply of easily
accessible oil. As the consumption curve continues upwards, the
production curve will be flat. The result will be huge spikes in prices.
It will not be a straight line, but prices will become progressively
higher. As the studies referenced above have concluded, the result will
be economic pain, social chaos, supply wars, food shortages, and a
drastic reduction in lifestyles of Americans. They won’t see it coming,
just like they didn’t see the housing collapse coming or the financial
system collapse coming. They’ll just keep filling up those Escalades
until the pump runs dry.

 

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Hulk's picture

LOL, you cretins were doing a great job! Trav has always been my point man! The building oil crisis is going to make the financial crisis look like a tip toe through the tulips. WASS (we are so screwed)

Exponential increase in the number of oil rigs , over past 10 years, in order to keep oil production flat should scare the shit out of everyone...

trav7777's picture

You're starring in a bukkake here, dude, and you don't even know it...plz STFU about things you know nothing about

nedwardkelly's picture

I see you getting all worked up about this and I'm not sure why.

To me peak oil Vs no peak oil is pretty fucking simple. Anyone grappling with whether or not peak oil is 'real' just needs to ask themselves the following questions.

1) Is oil a finite resource?

2) Does it matter that it's a finite resource?

Most people would answer yes to (1), some seem to think that there is so much available/yet to be discovered that the answer to (2) is no. Others think that as oil prices go up, alternatives will be found/developed, so we'll be fine as it runs out.

Personally, I think we're pretty f'ed (yes to both 1 & 2), but I'm not going to get all pissed off at someone that's more optimistic than I am. Instead I'm just long oil exploration/production and veggie gardening.If they're right and I'm wrong I'll just have to make do with the nice dividend on XOM. If I'm right and they're wrong, at some point in the near future the price of oil will go through the roof (regardless of inflation vs deflation), I'll get a nice return and will be a little better prepared for the oncoming calamity.

I really think oil is so ridiculously undervalued even at $150 a barrel. You've just got to look at some of the things we do with oil, then ask yourself how much you'd have to pay someone to do it manually, or to develop an alternative energy source that could power machinery to do the job.

EscapeKey's picture

Holy fucking shit, god damn you're a moron. You walk right into a discussion, clearly knowing NOTHING about Ghawar, and claims we have "just discovered the biggest oil field EVAR!!11"

You're wrong on every count.

Greyzone's picture

Your statement is completely, 100% false. The largest oil fields in the world were all discovered between 30 and 70 years ago. And they are all reaching their respective peaks or have already passed their respective peaks. Further, the top 1% of oil fields (in total size), provide over 66% of all oil produced each year. That should tell you how important the giant oil fields are to our energy situation.

Your false statement either indicates massive ignorance or deliberate falsehoods.

Peak oil is precisely why we need to move hard and fast on nuclear power, because while solar and wind are attractive, they cannot provide baseline loads. Further, swapping transportation over to electrical options also removes dependence on jihadist fundamentalists who fund their wars on us with our own export dollars.

Peak oil is not about a carbon tax. In fact, peak oil is proof of why a carbon tax is irrelevant - carbon production will get phased out without the tax just due to massively increasing costs.

For your information, the United States peaked in production in 1971, decades before environmental regulation really impacted oil production. And further, Alaska didn't even come close to returning us to the 1971 peak. All that Alaska did was slow down the decline. At its peak, the US produced over 10 million barrels per day, much as Saudi Arabia or Russia do today. But now the US produces just over 4 million barrels per day yet consumes 19-21 million barrels per day (depending on the economy). Likewise, the North Sea peaked in 1999 and every year since, Britain has claimed production was going to rise, yet it has fallen instead.

Peak oil is a chance for the US to shine at what it has done best in the past - to innovate. Instead, we have fools like you who want us to remain mired in a past that is soon to become completely obsolete. People like you are precisely why the decline of global oil production will cause havoc, wars, and social collapse. People like you will get exactly the kind of world that your ignorance deserves.

trav7777's picture

great post!

You are a far more patient person than I.  I have had this argument now for, shit, 7 years?

I've struggled to get people with IQs over 130 to understand Peak...it seems like a truly lost cause.

DaveyJones's picture

love the last paragraph.

Matt's picture

and without oil, what will your tires be made of? pure natural rubber? I think Peak Rubber was around a century ago, when Leopold II made human hands a form of currency http://www.cracked.com/funny-1219-congo-free-state/  // my point is that oil is very vital for far more things than internal combustion, and Peak <resource> is just about consumption exceeding production, not about running out.

trav7777's picture

No!

Peak is when the production rate hits its maximum, and NOTHING else

kathy.chamberlin@gmail.com's picture

peak charcoal, from the rain forests.

JLee2027's picture

VK: The oil is the same once extracted. The issue is the technology, percentage of recovery, and cost of such. Right now it's cheaper elsewhere.  Yes, you can recover 100% of pools of oil while a lower 3-6% of shale. The new horizontal drilling and rock fracking techniques should double or better that.

Millennial's picture

"percentage of recovery" summer. Recovery summer. Dumbass. 

 

 

j/k. 

VK's picture

No, it's not about recovery. It's about JOULES. The unit of energy. It's not about technology also, it's about thermodynamic limits. For every unit of energy expended in the oil shales and tar sands, you get about 3 to 6 joules on energy in return. Our entire civilization was built on energy surpluses in excess of 25:1 (meaning, 25 units of energy for every unit of energy invested in manpower, equipment, infrastructure, transportation, distribution, storage etc). Shale oil and tar sands are very, very poor NET energy wise. Solar and Wind have much better NET energy characteristics but are intermittent sources while Nuclear has a 15:1 NET energy output.

For more on this, please take a look at the work of Professor of Charles Hall at Syracuse University. 

Monetary Lapse of Reason's picture

+ 1

 

VK.. you have put alot of energy into this thread.. and I for one appreciate it.  Very good info supporting the idea of peak cheap, aka peak "net energy" oil.  

Citxmech's picture

Try to design a solar panel manufacturing plant that only uses solar energy for power.  Now try a vertically integrated supply chain.  This is what happens when your engery has a low EROEI.  Try the same experiment with wind power, etc. and you'll quickly see why the alternatives to oil are all insufficient to maintain our current economy.

Manged decline will be the new "growth."

VK's picture

Sorry, triple post. Deleted.

Millennial's picture

baleeted double post. Bitchez!

EscapeKey's picture

"pools of oil" - please list a single case of "pools of oil" having been located underground?

Oh right, you won't be able to, because oil doesn't exist in "pools". It exists in creaks of rock. Read up on permeability and porosity and come back when you comprehend the information.

And with tertiary extraction methods, we can get up to 55% of OOIP, if we're lucky. But often, it's a lot less than that.

curbyourrisk's picture

Net energy...if that was the case why are we concentrating on Solar and Wind.  They are horrible producers of NET energy.  In fact, solar energy is one of the least efficient forms out there.

VK's picture

Solar energy has a NET energy output of 20:1 or 5:1 depending on the location, wind is actually the best, with a ratio of 20:1 or more. The fact is that we aren't really concentrating on wind and solar much at all, they only produce the equivalent of 76,000 barrels per day for the US, while total US energy consumption is the equivalent of 46 million barrels per day. China now consumes more energy than the US as well. So solar and wind contribute less than 1/2 pc of US energy needs.

 

Solar and Wind are highly intermittent, the solution for these is the use of smart grids and off grid solutions, Europe is far more advanced in their implementation of these smart grids to account for the fact that the sun don't shine all the time and the wind don't blow all the time. But smart grids require huge investments and also the US and Canadian grids are much larger i.e. dispersed over a much larger area. Hence it is very difficult to implement smart grids and very expensive. 

Hulk's picture

Solar technology is the greatest wealth destroying technology ever devised by mankind...

DaveyJones's picture

but passive solar design and architecture to fit the environment makes sense 

trav7777's picture

We needed a Manhattan Project on this in the 1990s, when we had the chance.  Like Hirsch and others said.

Instead we got Bill Clitton, SUVs, and twin .com and housing bubbles.  Worst.President.Ever.

The Mars Rover has $1M/panel voltaics that deliver 2-3x the efficiencies of commonly-available panels.  Where's the investment?  We invested in granite countertops and deadwood real estate.  No Child Left Behind and stupid shit like this, irrationally kvetching and wasting our resources and time on kids who simply lack the aptitude to ever be good at cognitive tasks.

There are technologies out there, thorium cycle nuclear, PBMR, etc...still no liquid fuels.  Air travel requires the energy density of gasoline, but ground transport can live with H2 or ethanol.  And yet where did our investment go?  We printed money to liquify BANKS for a fucking credit bubble that built shit with NO RETURN.

All of our national spending is sunk cost, dead assets.

EscapeKey's picture

Can I subscribe to your energy related newsletter? I find your level of disinformation really rather amusing.

curbyourrisk's picture

It can be found at www.oilforsuckers.com

 

But I thought you were already a card carrying member...

EscapeKey's picture

No, I'm afraid it wasn't me you recognized at their latest gathering.

Uncle Remus's picture

why are we concentrating on Solar and Wind.

Gotta put something in the Hopium pipe...

aerojet's picture

You must be a boomer as evidenced by your inside-the-box thinking.  When things get desperate, people get inventive.  Extract the oil from the shale by building a nuclear reactor on the site. 

Anyways, once the  Boomers are all dead, peak usage will slow down, too, since they're the last generation of assholes who think muscle cars and Harleys are so fucking important.

EscapeKey's picture

Unfortunately, it's not quite that simple. Nuclear takes years to build, and requires access to huge volumes of fresh water, which cuts down on potential construction sites.

 

VK's picture

Not to mention that you need to store the damn waste properly for 10,000 years!! 

TobyJones's picture

May I introduce you to the idea of EROEI.  Yes we have lots of shale oil.  It's just a lot more expensive than $80 a barrel to get it. 

kathy.chamberlin@gmail.com's picture

There are trillions of barrels of shale water, used to frack the shale oil.

DarkAgeAhead's picture

EROI

Biophysical economics

Emergy

Peak energy return is impending.  Peak biological limits are here too. 

Citxmech's picture

Doesn't matter how much is locked up - it matters how fast you can get it out and at what cost.

The amount of oil isn't the issue - it's the availability of Cheap Oil.

FranSix's picture

Oil prices are running well behind inflation, though for a time, it was the main speculative gas:

 

http://stockcharts.com/h-sc/ui?s=$WTIC:$GOLD&p=M&st=1995-01-01&en=(today)&id=p99744927421&listNum=2&a=207760336

Ragnarok's picture

Peak cheap oil yes, but when you don't extract 50-70% of the hydrocarbons in a given reservoir because of current production techniques, it means there is still plenty of oil out there.  We just need to find a way of extracting it.

 

Peak oil my ass.

SheepDog-One's picture

Yes what the world control oil companies are trying to create is cheap production for themselves, massive new taxes and regulation on us! Still PLENTY of oil and gas, hell right now we're sitting on all time high storage capacity!

Ragnarok's picture

I was coming from a purely scientific angle.  Most conventional wells are drilled over-balance (weight of the mud column greater than reservoir pressure) and bypass many smaller sands to produce the largest.  Also when you drill over-balance your drilling fluids intrude into the formation clogging and sealing off much of the porosity hindering permeability and thus production.

EscapeKey's picture

Tapping into smaller resources - that's the whole point of Maximum Reservoir Contact drilling. What you said might have been true for US drilling, pre-1980, but that is no longer the case.

 

trav7777's picture

Do you even vaguely understand how what you JUST SAID in fact validates peak oil?

DaveyJones's picture

that's why he compared the debate to his own rectum