I don’t know if you’ve noticed, but there’s currently a big debate going on over whether we’re “running out of oil.” I’m no expert, but I don’t see how can we be running out of oil when we’ve got a 100,000 barrel a day gusher in the gulf. And that’s just one well ! Then there’s the tar sands and the oil shale and the coal to oil technology, and all that other stuff the experts tell me we can use. So, don’t tell me we’re running out of oil. That’s just silly talk, right? But then I find out, apparently it’s not the total resource base you have to worry about, but the rate of extraction. In other words, it doesn’t matter whether you have one trillion, 10 trillion, or 100 trillion barrels of oil reserves. The world uses about 80 million barrels of oil a day, and if for some reason the current daily production of oil can’t supply that number, there’s going to be problems. Remember the 1970’s, or maybe you don’t . And here’s the kicker – after climbing steadily for the past 150 years or so, the daily rate of production has been flat for the past six years or so. And that’s not even the bad news. According to some people, this flat line in production is just a prelude to an inevitable decline in oil production rates.
Maybe you’ve heard of these people. The peak oil movement, or “peaksters” they’re called, or sometimes just Doomers. They trace their analytic lineage to the famous (in energy circles anyway) M. King Hubbert, who in 1956 predicted, correctly as it turns out, that U.S. oil production would peak in 1970. As I understand it his analysis was as follows. Oil production from any newly discovered well follows a predictable bell-shaped curve, with the rate of production gradually rising for a period of years, until it reaches a peak. After the peak, the rate of production gradually decreases until the well reaches a point where further oil extraction is no longer economical. A second proposition is that the peak of a well’s production will generally arrive approximately 32 to 35 years after the discovery of the well. Hubbert observed that this relationship holds true not only for individual wells, but for entire oil producing regions generally. The peak of discovery for oil in the continental United States was the mid 1930’s. From this, Hubbard extrapolated that the peak of production would occur approximately 35 years later, or around 1970. When oil production in the continental United States peaked in 1970, Hubbert’s reputation was sealed.
Hubbert also used his famous Hubbert’s Curve analysis to predict that worldwide oil production would peak between 2000 and 2010. This prediction was based on the observation that the peak for discovery of new fields world wide occurred in the mid 1960’s. A simple extrapolation from that yields a predicted peak for world wide oil production of approximately the year 2000. Hence, the current debate over whether the prediction is accurate and whether we are currently at or near the peak in worldwide production. And hence, the significance of the fairly steady rate of approximately 80 million barrels per day for the past six years, despite extreme swings in the price of oil.
Of course, as you might expect, the folks in the energy mainstream denounce this notion of peak oil as errant nonsense. We’ve got scads of oil they say. Just look at the reserve figures. But, as per the above, it’s not the reserve figures, but the rate at which those reserves can be converted into actual usable oil that counts. And here’s the rub – not all reserves are created equal. There’s the light, low sulfur grades of crude. The kind that’s easy to get at and refine. The kind that we’ve been using up at increasingly high rates for the last hundred and fifty years. And then there’s the other kind of reserve – the thick tar and oil sands kind of reserves. The kind that’s hard to get out, high in sulfur and difficult to refine. And most importantly, the kind that flows very slowly. And that’s pretty much what we have left. Oh, plus all that oil that’s under miles of ocean. So, maybe we do have a problem I’m thinking.
But, not to worry, say the experts. We just have to wait for the right price signals. Then the magic of the markets combined with good old fashioned Yankee ingenuity will invent a substitute for oil. What substitutes you might ask. Well, take your pick – solar, biodiesel, ethanol, electric cars, whatever. Just have to iron out a few bugs and they’ll be ready any day. I don’t know about you, but it seems to me that based on what we’ve seeing from the oil industry lately it’s pretty much time we were deploying this stuff. But, as far as I can tell, it’s not any more ready now than it was thirty years ago when we had the last energy crisis.
So, what happens now? Don’t ask me. There’s any number of doomer prognosticators you can read who can give you their predictions about the social and economic impacts of running out of oil. The Doomers can also give you all kinds of advice about what you can do about it. But, I wouldn’t advise reading any of them because they’re depressing. In a nutshell, they say that if the world runs short of oil we’re probably going to be looking at a scenario that looks a lot like – well what we’re seeing now. Economic stagnation and unemployment. If you ask me, when faced with a dire and apparently intractable problem like that, ignoring it seems at least as valid a strategy as worrying about it. The end result is the same regardless right? So, that’s what I plan to do about the problem – ignore it. Besides, maybe it will just go away. There’s always been more than enough gasoline around to keep us all going for as long as I can remember and so, statistics and science aside, how could it ever run out? And anyway, I’m sure some real smart person is working on a painless solution as we speak. Get back to me when production hits 60 million barrels a day.