Peak Oil is You
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Page added on October 14, 2014
Peak oil is here: the view from Barbastro
When I started working on peak oil, around 2001, it was an intellectual game that I played with others interested in the same subject. We listed resources and reserves, we made models, we plotted curves, we extrapolated data, and more of that. But the peak was always in the future. Some models had it in a few years, others in a decade or more. True, it never was a remote future, but it was not the present, either. We knew that the peak would bring a lot of problems, but we couldn’t really visualize them.
Then, we discovered that oil was not the only resource destined to peak. We discovered that the peaking mechanism is very general and affects everything that can be overexploited. There was peak gas, peak coil, peak uranium and – in time – “peak minerals”, which was the origin of my book “Extracted“. Somehow, peak oil receded to just one of the many peaks expected in the future; still important, but not really so fundamental as we had thought at the beginning. I never lost interest in peak oil, but it sort of moved from a central position to the background of my interests.
But things change, and change fast. Two days of conference in Barbastro were a hard reminder that oil is still the most important resource in the world. At the conference, a number of impressive speakers lined up to show their data and their models on peak oil. Antonio Turiel, Kjell Aleklett, David Hughes, Gail Tverberg, Michael Hook, Pedro Prieto. From what they said, it is clear that the future it is not any more a question of arguing about resources and reserves, lining up barrels of oil as if they were pieces to be played on a giant chessboard. It is not any more a question of plotting curves and extrapolating data. No: it is more a question of money. We are not running out of oil, we are running out of the financial resources needed to extract it.
During the past years, the oil industry has spent enormous amounts of money to make an immense effort in developing new resources. Up to now, these resources, especially shale oil and shale gas, have done the trick, growing fast enough to compensate for the decline of conventional resources. But this success has been hugely expensive and it can only be short lived. As Arthur Berman said, “Production from shale is not a revolution; it’s a retirement party.” Now, there is nothing on the horizon that could repeat the small miracle of shale oil and gas, which managed to postpone the peak for a few years. The party may well be over.
What gives the game away are the data showing that capital expenditures (“capex”) in new projects are falling and that the industry is pulling out of the most expensive projects. It is a no-win game: the more you extract, the more you need money to keep extracting. But the more money you need, the lower are your profits. And when the mighty financial market realizes that profits are falling, then it is the end of the game: no money, no oil.
So, peak oil is here, in front of us. It may be this year or next year; or maybe even a little later. But it is not any more an abstract intellectual game: it is directly affecting our life. Look at the world around us: don’t you think that there is something deeply wrong with the very fabric of what we call, sometimes, “civilization”? That something could very well be peak oil.
We started working on peak oil thinking that if we could have alerted the world of the danger ahead, something would have been done to solve the problem. We didn’t succeed: something has been done, but too little and too late. Now we are going through the peak and looking at the other side. What we are seeing is not pretty; we can just hope that it won’t be even worse than it seems to be.
12 Comments on "Peak oil is here: the view from Barbastro"
Plantagenet on Tue, 14th Oct 2014 2:47 pm
When Hubbert introduced the peak oil concept, he made it clear that peak oil involved BOTH geology and economics. The geology part is pretty clear—conventional oil has peaked and in desperation we started tracking. The financial part is more opaque, as most economists do not acknowledge the central role that oil plays in the US and global economies.
Plantagenet on Tue, 14th Oct 2014 2:48 pm
When Hubbert introduced the peak oil concept, he made it clear that peak oil involved BOTH geology and economics. The geology part is pretty clear—conventional oil has peaked and in desperation we started fracking for shale oil. The financial part is more opaque, as most economists do not acknowledge the central role that oil plays in the US and global economies.
Nony on Tue, 14th Oct 2014 3:12 pm
If you read the 1956 paper, Hubbert does NOT acknowledge economics, Hotelling theory, etc. It’s one of the places where Rock is actually superior to Hubbert.
Plantagenet on Tue, 14th Oct 2014 3:22 pm
I stand corrected, nony. You are 100% right — Hubbert did not explicitly discuss economics or cost factors in his 1956 paper.
Its certainly implicit in Peak Oil theory, but Hubbert never discusses it explicitly.
Nony on Tue, 14th Oct 2014 3:46 pm
He was a weird dude. Technocracy believer. Strange 30’s brand of socialism where the engineers lead the masses and they deny some basic econ principles (price systems).
http://en.wikipedia.org/wiki/Technocracy_movement
Nony on Tue, 14th Oct 2014 3:51 pm
Here’s a good article on econ aspects of peak oil:
http://web.mit.edu/ceepr/www/publications/workingpapers/98008.pdf
“The cost and price of any mineral are constantly pushed in two opposing directions.
Depletion pushes the supply curve toward the left, while growing knowledge pushes it rightward.”
You can actually be a peaker (a moderate POD one like Rock) or a cornie (rationale one like me) and still agree with the point above. It just depends which factor is winning.
I like Adelman a lot better than Hamilton. He discusses things from a fundamental supply-demand perspective unlike Hamilton (over-rated imo) who tends to more hand-waving and econometric-trend type arguments (and does not get into the nitty gritty of supply segments, demand segments).
Plantagenet on Tue, 14th Oct 2014 4:12 pm
Thanks Nony. I was familiar with Hamilton but hadn’t read Adelman.
Nony on Tue, 14th Oct 2014 6:14 pm
http://www.cnbc.com/id/102084062
This is the direction I like…keep it going.
GregT on Tue, 14th Oct 2014 6:51 pm
Oil is a finite resource. US conventional oil peaked, just as Hubbert said that it would, very close to the time that Hubbert predicted it would. World conventional oil production peaked, just as Hubbert said that it would, very close to the time he predicted that it would.
Unconventional oil production will not run the worlds economies. The damage has already been inflicted, even with conventional oil propping up unconventional production. Once the decline of conventional production really kicks in, economies will continue to decline until they completely collapse. At that point most, if not all, unconventional oil production will cease.
GregT on Tue, 14th Oct 2014 7:53 pm
Econ 101 is killing America
“Forget the dumbed-down garbage most economists spew. Their myths are causing tragic results for everyday Americans”
“despite economists’ calming assurances, we still know little about how economies actually work and the effect of policies. If we did, then economists should have sounded the alarm bells to head off the financial collapse and Great Recession. But even more problematic, even though most economists know better, they present to the public, the media and politicians a simplified, vulgar version of neoclassical economics — what can be called Econ 101 — that leads policymakers astray. ”
http://www.salon.com/2013/07/08/how_“econ_101”_is_killing_america/
action on Wed, 15th Oct 2014 8:45 am
Oil price stability is good for a functioning economy, preferably low and stable, but high and stable works too as can been see by the frackingand other expensive nonconventional sources. To me one indicator of the peak is oil price VOLATILITY, that which when price is low hampers unconventional new developments, but when high destroys demand in a self destructive cycle.
J-Gav on Wed, 15th Oct 2014 10:07 am
Hubbert may not have talked about economics but Ugo Bardi very explicitly does, and rightly so.
What will it be? One helluva “retirement party” or a sincere, international effort to throttle back before reaching some point of no return?