Guest Post: The Really, Really Big Picture

Tyler Durden's picture

Submitted by Chris Martenson of Peak Prosperity,

[Many longtime followers of the Crash Course have asked Chris to update his forecasts for Peak Oil in light of the production increases in shale oil and gas over recent years. What started out as a modest effort at clarification morphed into a much more massive 3-report treatise as Chris sifted through mountains of new data that ultimately left him more convinced than ever we are facing a global net energy crisis despite misguided media efforts intended to convince us otherwise. His reports are being released in series over the next several weeks; the first installment is below.]

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

This series of reports will assemble the relevant data into a simple and easy-to-understand story that has the appropriate context to provide a meaningful place to begin a conversation and make decisions.

Since completing the Crash Course in October of 2008, much has gone as I anticipated in the way of money printing, official neglect of the main predicaments we face, and generally higher petroleum costs (2012 was the record so far on a yearly basis).

What has not changed is the general trajectory of liquid fuels becoming increasingly expensive and more difficult to produce.  I know that this runs counter to virtually every news article that has come out recently.  It is time to separate the data and facts from the hype.  Much has recently been either muddied or presented so far out of context as to be more distortive than helpful.

This entire body of analysis is so large that it will be broken into three pieces. 

The first is a general world outlook for petroleum that presents the macro picture, provides some necessary clarifications on definitions, and illustrates that all of the data is consistent with the idea that the world is on a plateau of oil production.  Here we note that exactly zero of the major energy outlooks provided by the IEA, the EIA, PB, and especially the inexcusably sloppy piece put out under the auspices of Harvard (the Maugheri report of 2012) all failed to make any mention of the declining net energy provided by any of the new unconventional oil finds.  This is a crucial oversight.

The second report will focus on natural gas in the U.S., with a particular emphasis on shale gas, the supposed game-changer that we have read so much about.  There are some very important elements to this story, but the punch line is that there's nowhere near "100 years" of this magic fuel, it costs more to produce than it is being sold for at present here in early 2013, and – once we include the idea of future increases in consumption – there may only be in the vicinity of 20-30 years of proven and probable reserves. And that is if and only if prices rise by a factor of 2.5x or more from the current $3.30 per therm market price. 

The third will focus on tight oil, often called shale oil (not to be confused with oil shale, a very common mistake), and make the case that, while it may have some modifying effect to the Peak Oil story, it lacks the ability to return the world to anywhere near its prior glory years of ~2% per year growth in global oil output. 

The summary of all three reports leads to the conclusion that all efforts to cram the world full of fresh rounds of new debt lending are going to end in failure because the requisite net energy is simply not there to support continued debt accumulations running several-fold faster than actual economic productive output.

Enormous risks are continuing to build in the world's financial landscape, and the continued unwillingness to confront the truth about our global energy predicament is both puzzling and frightening. The conclusion is that our future resilience as individuals, corporations, or countries will hinge to a very large degree on whether or not we heed the warning signs and adapt our lives and habits to the actual circumstances.

The Really, Really Big Picture

The really big picture goes like this:  Humans discovered about 400 million years worth of stored sunlight in the form of coal, oil, and natural gas, and have developed technologies that will essentially see all of that treasure burned up in just 300 to 400 years. 

On the faulty assumption that fossil fuels will always be a resource we could draw upon, we fashioned economic, monetary, and other assorted belief systems based on permanent abundance, plus a species population on track to number around 9 billion souls by 2050.

There are two numbers to keep firmly in mind.  The first is 22, and the other is 10.  In the past 22 years, half of all of the oil ever burned has been burned.  Such is the nature of exponentially increasing demand.  And the oil burned in the last 22 years was the easy and cheap stuff discovered 30 to 40 years ago.  Which brings us to the number 10.  

In every calorie of food that comes to your table are hidden 10 calories of fossil fuels, making modern agriculture and food delivery the first type in history that consumes more energy than it delivers.  Someday fossil fuels will be all gone.  That day may be far off in the future, but preparing for that day could (and one could argue should) easily require every bit of time we have.

What galls me at this stage is that all of the pronouncements of additional oil being squeezed, fractured, and otherwise expensively coaxed out of the ground are being delivered with the message that there's so much available, there's nothing to worry about (at least, not yet.)  The message seems to be that we can just leave those challenges for future people, who we expect to be at least as clever as us, so they'll surely manage just fine.

Instead, the chart above illustrates that on a reasonably significant timeline, the age of fossil fuels will be intense and historically quite short.  The real question is not Will it run out? but Where would we like to be, and what should the future look like when it finally runs out?  The former question suggests that "maintain the status quo" is the correct response, while the latter question suggests that we had better be investing this once-in-a-species bequeathment very judiciously and wisely. 

Energy is vital to our economy and our easy, modern lives.  Without energy, there would be no economy.  The more expensive our energy is, the more of our economy is dedicated to getting energy instead of other pursuits and activities.  Among the various forms of energy, petroleum is the king of transportation fuels and is indispensible to our global economy and way of life.

To what do we owe the recent explosion in technology and living standards?  To me the answer is simple: energy. 


Because a very large proportion of our society was no longer tied up with the time-consuming tasks of growing their own food or building and heating their own shelter, they were free to do other very clever things, like devote their lives to advancing technology.  

When energy starts to get out of reach either economically or geologically, then people revert to more basic things, like trying to stay warm – such as this fellow:

Greeks Raid Forests in Search of Wood to Heat Homes

Jan 11, 2013

EGALEO, Greece—While patrolling on a recent cold night, environmentalist Grigoris Gourdomichalis caught a young man illegally chopping down a tree on public land in the mountains above Athens.

When confronted, the man broke down in tears, saying he was unemployed and needed the wood to warm the home he shares with his wife and four small children, because he could no longer afford heating oil.

"It was a tough choice, but I decided just to let him go" with the wood, said Mr. Gourdomichalis, head of the locally financed Environmental Association of Municipalities of Athens, which works to protect forests around Egaleo, a western suburb of the capital.

Tens of thousands of trees have disappeared from parks and woodlands this winter across Greece, authorities said, in a worsening problem that has had tragic consequences as the crisis-hit country's impoverished residents, too broke to pay for electricity or fuel, turn to fireplaces and wood stoves for heat.

I think it is safe to assume that all of the people in Greece who are chopping down trees to stay warm are not simultaneously working on the next generation of technology.  Energy first; everything else second.  In other words, our perceived wealth and well-being are both derivatives of energy. 

Like every other organism bestowed with abundant food – in this case, fossil fuels that we have converted into food, mobility, shelter, warmth, and a vast array of consumer goods – we first embarked on a remarkable path of exponential population growth.  Along with these assorted freedoms from securing the basics of living, we also fashioned monetary and economic systems that are fully dependent on perpetual exponential growth for their vitality and well-being.  These, too, owe their very sustenance to energy.

It bears repeating:  Not just energy is important here, but net energy.  It's the energy left over after we find and produce energy that is available for society to do all of its complicated and clever things.

Not only is the world struggling right now to increase global oil production, but all of the new and unconventional finds offer us dramatically less net energy to use as we wish. 

Where We Are, in Three Simple Charts

One narrative that is being heavily marketed right now is that the shale plays are true game-changers and there's really nothing to worry about for the foreseeable future.  Heck, the story says that the U.S. will soon exceed Saudi Arabia in oil production and become energy independent, that it has so much natural gas that it might as well build export terminals, and that there's 100 years of natural gas just waiting to be used.

Unfortunately, none of this is really true.  Here's how I can make the case for that assertion using just three charts. 

This first chart comes to us from the EIA courtesy of one Mr. Sweetnam, a former director at the EIA who was promptly reassigned to a distant position when his superiors discovered that this chart revealing declines in existing conventional oil fields had been released to the public.

What this graph shows is the projected decline of all known projects in 2009 (so this does not have the U.S. shale 'revolution' baked into it, but I'll get to that shortly), and it shows that those projects are going to slip from delivering 85 million barrels per day (bpd) of crude oil to just 45 million bpd between 2012 and 2030.  In other words, 40 million bpd will go missing.  But it's worse than that, because demand is expected to grow, leaving a gap of more than 60 million bpd by 2030.

If that sounds like a lot, it is, but that's just an assumed rate of production decline of 4.8% per year, which is right in the midzone of expert estimates.  Some estimate decline rates as high as 6.5%, which would really amplify the drop and the resulting gap.

The top line is showing how much oil demand would grow if it was going to expand at the usual historical rates.  The gap between those two modeled states is 43 million barrels.  To put that in a U.S. shale context, the EIA projects that the domestic shale plays might deliver as much as 3 million barrels per day by 2020, which is nothing to sneeze at, but even with that there's a projected 40 million bpd shortfall

The second chart I want you to look at is this one which shows total world crude oil production over the past 12 years:

Between 2004 and 2012, the total supply of global crude oil + condensates (a definition which excludes the non-transportation fuels known as natural gas plant liquids and biofuels) has just flopped around in a tight band with only 5% wiggle.

It bears noting here that the 2004 average spot price for crude oil (using the Brent contract, as that better defines the 'world oil' price) was $38.35/bbl, while the average 2012 spot price was $111.63, or 2.9 times higher than the 2004 price. 

Despite this near tripling in price, the global supply is just sitting there stuck on a plateau.  Economically speaking, this is not supposed to happen.  What is supposed to happen is that suppliers will react to these higher prices and deliver more to the market, and then prices will settle down.  But that hasn't happened, which indicates that global oil supplies are, as expected, constrained by something other than market forces.

This brings us to the third chart of global spending on oil projects:

What also happened during the time that global supplies of crude oil were undulating along that 5% plateau?  Global expenditures on oil projects jumped by 100% from $300 billion per year to $600 billion.  With a 100% increase in capital spending by the petroleum industry, we saw petroleum supplies remain more or less stuck in the exact same spot. 

I am of the impression that $600 billion a year is a lot of money and that the people dedicating that capital are applying it to the very best projects available.  I make the further assumption that when a project is identified and pursued, it is brought on line as rapidly as possible.  There are not that many ways to look at this data other than noting that we are spending more and more to get the same...for now.

If you want to know why oil costs over $110 on the world stage, the last two charts above give you the answer:  There's just not that much of it to go around.

Despite all of this effort and expense, the world is basically treading water with respect to overall production.  The reason for that is contained in the first chart out of these three:  The race is now on to bring new projects on line quickly enough to offset the losses from existing fields. 

Petroleum is neither a U.S. issue nor any other specific country's issue, but rather a global commodity of immense importance. While the development of the shale plays in the U.S. is of domestic importance, it has not altered the global dynamic of static oil production – at least not detectably in the global supply charts. Not yet.

Conclusion (to Part I)

In Part II: How Energy Woes Will Trigger Financial Crisis, we look at the latest global petroleum supply and demand data and see clearly that cheap oil has become extinct. That era is over for humankind. 

My prediction is that the underlying rates of depletion will continue to fight the recent production gains in the U.S. and elsewhere in the world until they soon come to a standstill, eventually swamping even heroic efforts. 

Steadily rising energy costs and decreasing net energy yields will simply not be able to fund the future economic growth and consumptive lifestyles that developed nations are depending on (and that developing nations are aspiring to). In fact, the persistent global economic weakness we've been experiencing over the past years is an expected symptom of the throttling constraint decreasing net energy places on growth.

If you care about the future of the economy, your standard of living (or that of your children), and/or your quality of life, you need to fully understand this relationship between growth and net energy. Your individual future (and our collective one) depends on it.

Click here to read Part II of this report (free executive summary; enrollment required for full access).

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OOONONO's picture

Take another look at the "A Brief History of Oil & Humans" graphic in the article above ...  and then try again

Matt's picture

That chart would be far more useful if it showed that Y = 0 is 2 Billion for human population, and if it included coal as well as oil.

perelmanfan's picture

It's not just a question of finding new energy sources. We will also simply use less, and be no "poorer" for it by any qualitative standard. Europeans use less than half the energy that Americans do, and lead better, healthier lives. If Americans are pushed by rising oil prices to drive smaller cars, bike, garden at home, double up in massive McMansions, install LED lights, etc. etc. etc. etc. etc. it is a good thing, even if they think it is not. It's fun here on ZH to argue that all Americans are louts and mouthbreathers who would rather die than abandon their wasteful habits - and some certainly are. But not all. Not even most.  

Matt's picture

The problem is that much of North America is built around the car, and it will take a great deal of energy to restructure whole cities away from that design. European cities were built before cars, so walking everywhere is no big deal. Try that in Los Angeles.

OOONONO's picture

You mean that "Julian Simon" - the moron that Al Bartlett (i.e., the most important video you will ever see) destroyed?

You are kidding, right?


SgtShaftoe's picture

Population is basically topped out, and is in decline in many countries, it's not exponential forever. I don't see any problem with the current population level, given that innovation is still accelerating, and population will begin declining globally in the next couple decades, and due to fewer families having children. Granted, you can't have exponential growth forever in a system with unknown but not infinite limits, but we're not going there, so it's largely academic.

Matt's picture

Your generalizations about developed societies does not apply to Latin America, Africa, or much of Asia where fertility rates remain quite high. A portion of the excess population then migrates to the developed world. The developed world, in turn, continues to export food surpluses to these places.

This means the population will always increase to match the available food supply. Guess what happens if there is a sudden shortage?

Any sources for your model where population declines in the next few decades? All the ones I see have a target for 9 to 14 billion people ~2050.

AnAnonymous's picture

When price signals make oil uneconomical, a new form of energy is developed and used.

Amen to that, bro.
We, Americans, are a special breed in humanity: we know how to overcome the environment. That is why the whole environment had to be trusted with us. We have been the safest, most well inspired managers of it.

Signed: an American.

Almost Solvent's picture

No, a men to you my bubbling citizenship is full of energy. Ya Yo said the man in the club with 5 0 scent.

Once my finger pulled, energy all released into your dutch o van.

TheFourthStooge-ing's picture


Once my finger pulled, energy all released into your dutch o van.

Very crusticular, AnAnonymous style.

TheFourthStooge-ing's picture

AnAnonymen to that, bro.
We, Chinese citizenism hypocritizens, cook all special breeds of caninity and felinity: we know how to overcome their resistance to wokking. That is why the whole dog is stir-fried by us. We have been the crustiest, most well inspired managers of our JKC (Just Cooked Cat) fast food franchises, even introducing new delicacies to the menu such as pickled dog taint in hot mustard sauce.

Signed: AnAnonymous

steve from virginia's picture



That stuff is called 'infant formula' over here ...


It's also fed to the geezers in Alzheimers' wings. They don't know so they can't care ...

Matt's picture

The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.

-George Bernard Shaw

Taint Boil's picture



…………..At that 2.3% growth rate, we would be using energy at a rate corresponding to the total solar input striking Earth in a little over 400 years. We would consume something comparable to the entire sun in 1400 years from now. By 2500 years, we would use energy at the rate of the entire Milky Way galaxy—100 billion stars……….




You can’t have continuous growth rates – it just doesn’t work mathematically.


"The greatest shortcoming of the human race is our inability to understand the exponential function."


Bartlett, 1998

Matt's picture

So, what you are saying is, we can use renewable energy to continue the current growth paradigm for the next 400 years while we work out a better system.

Taint Boil's picture



174 petawatts of sun hits the earth per year (30% is reflected but let’s ignore).


174 petawatts = 174,000,000,000 megawatts.


1 barrel of oil = .564 megawatts +/-


174 petawatts = 308,510,638,297 barrels of oil.


The world uses 87,000,000 barrels of oil per day.


So that is 3,546 times more barrels than we use today.


Ummm, what was your question again, Oh Yeah … to answer your question in one word - NO.





Matt's picture

1) was sarc, but anyways:

2) your first post, you said at 2.3% growth we would use 100% of all solar power recieved by Earth in "a little over 400 years", then you reply that, no, we cannot continue the current paradigm for 400 years. So your posts contradict each other.


Taint Boil's picture



The first post (copied and pasted) was implying, I assume, that it would not be possible or practical for the earth to sustain such growth. I don’t think the author was suggesting that solar energy was the answer or possible; the sun was just used for a comparison so the sheep could get their arms around it.


I know you were being sarcastic in the 1st post.

mind_imminst's picture

Why all the down votes for the good sargeant? Peak oil theorists have been saying the same thing for a couple of decades now. At the very least, inductive reasoning should make people a little skeptical of ANOTHER claim of "peak oil" and the crash of civilization. Energy and the economy are in a dynamic equilibrium. Stop thinking in static or linear terms.

Dark_Horse's picture

We already have another energy source somewhat comparable to petroleum, it's Nuclear.

but that didn't work out so well for 3Mile Island, Chernobyl, Fukushima, ...

When petroleum is not longer feasable for largescale energy use, there will need to be a nuclear reactor near every town, and several around each city.

I myself, don't like the poor record of Nuclear reactors(should be zero disasters), and certainly not if I have to live near several of them.

Citxmech's picture

The other problem is that we've peaked on nuclear fuel too.

Matt's picture

On one type of nuclear fuel, you mean. One of the rarest forms of nuclear fuel, U-235, which is rarer than silver. If only there were other potential fuel sources ...

LFTR in 5 minutes

CrashisOptimistic's picture

Funny how when you sell a few books you decide you didn't say everything in the first one and write another.

And btw, as to sneering at the ability of a fucking commodity to kill you, how would you, naked and with no tools, innovate your way out of a locked and sealed closet with 5 minutes of air in it?

Don't delude yourself.  There is nothing sacred about human thought.  Human thought creaked population up to 1 billion people in 1900.  It's 7 now.  No one got smarter.  Oil arrived to drive 400 horsepower tractors over 100,000 acres of farmland before planting season expired.  Oil arrived to drive trucks to bring that food to your grocery store.

Were there no oil, there would be 1.25 billion people.

AgAu_man's picture

SgtShaftoe:  "Enough with the Malthusian doom bullshit."

What comes to mind when I read your post is this:  "People claim they want the truth.  But that's not true.  People want the 'truth' that is consistent with the world-view with which they've become accustomed." -AgAu_man.

People prefer information that support their existing view.  Few are keen on having them challenged or shaken.  Even fewer actually enjoy having them challenged, as they see it as a sport to improve their brains.

That's not because the clever parts of their brain can't process the truth, but because the emotional parts of their brain can't process it easily, i.e. the can't "turn on a dime" at the emotional level.  Most people solve problems and make (buying) decisions at a primal/visceral/emotional level first, and then use their abstract skills (more recently evolved, if at all) to justify their decisions.  Rather than doing it the other way around:  Problem solve first, then attach emotional anchors to the solution.

Mercury's picture

On the faulty assumption that fossil fuels will always be a resource we could draw upon, we fashioned economic, monetary, and other assorted belief systems based on permanent abundance, plus a species population on track to number around 9 billion souls by 2050.


Another faulty assumption might be that natural gas comes only from fossils.

Flakmeister's picture

Yep... thats the ticket, nothing a dose of wishful thinking can't cure...

Mercury's picture

OK, name the five most common dinosaur species that once roamed this heavenly body with a methane-rich atmosphere.

Flakmeister's picture

And remind me of the relationship between escape velocity and planetary temperature... I'll throw in at no extra cost, photo-dissociation data....

BTW, that dinosaur strawman only works at Yahoo! and boards of that calibre...

Ident 7777 economy's picture

sez you. And look who you are ...

RacerX's picture

right. I know some folks that seemingly have an unlimited supply of un-natural gas.

LawsofPhysics's picture

ever see what the production numbers look like over the lifetime of a natgas well?  You might want to take a look.  Flux matters.  there is a certain flux required to maintain a certain quality of life for 7 billion+ people.

Seems those falty assumptions keep piling up.

Flakmeister's picture

Oh goodie....

We have an article on Gun Control, now Peak Oil....

Must be a rating sweeps week or something...

Spastica Rex's picture

I want to discuss gay Muslims.

Cognitive Dissonance's picture

There's nothing to discuss because there are none. Also there are no gay Republicans, just gay liberal Democrats.


Matt's picture

If you look back, I think you will find last Wednesday was also filled with Gold, Guns, Oil, etc. It seems Wednesday is the day for high volume hot topic posts.

otto skorzeny's picture

senator mark kirk is a little sweet- but it's nothing his handlers at AIPAC that put him in office can't keep quiet

Dr. Engali's picture


"Also there are no gay Republicans, just gay liberal Democrats".


Well there was that one know the one..who likes to play footsie in the toilet stall...Larry Craig.

fuu's picture

They may not be gay but they do seem to enjoy bending over the pages.

Jack it!

Spastica Rex's picture

It's easy to tell who isn't a gay politician. Look for sincerity in the eyes and an American flag in the background.


samsara's picture

Don't tell that to Lindsey Grahm Cracker

steve from virginia's picture



Most of the Republicans are punishment fags, none of them are ... 'gay'.


'Punishment fag' = J. Edgar Hoover.

Dr. Engali's picture

I want to discuss gay gun carrying muslims who dress in drag and control all of the world's oil.....oh yeah and toss in how they are this close <> to getting a nuclear bomb. Is that nuclear or nucler? Let's ask W.

Flakmeister's picture

Got any more of those "intricate" stone carvings to share with us?

Spastica Rex's picture

Medieval European erotic art is pretty hard to come by.

It's also rare.

Flakmeister's picture

Tough crowd... *you* got junked for god knows what... Maybe it is the company you keep...

Spastica Rex's picture

I hope so, cuz that was my very best Henny Youngman impersonation.