An economy awash in oil

Marion King Hubbert’s famous theory of “peak oil” has gained a great deal of traction in the scientific literature of various fields. Want to read up on peak oil and urban planning? Check. Peak oil and tourism? No problem, you’re not the first. Peak oil and public health? Where to even begin? There have been articles on the peak oil phenomenon in publications such as the International Journal of Child Rights; Behaviour and Social Issues; and Physica: Statistical Mechanics and Its Applications.

Curiously, however, there is one field whose literature is a tad light on serious discussions of peak oil: economics.

There is a simple explanation for that. Hubbert’s theory has economic implications, but no economic content per se. In his famous 1956 paper, Hubbert, a Shell geologist who joked about growing up in “the only part of Texas where there isn’t any oil,” argued that a non-renewable resource in any particular region tends to be exhausted according to a predictable bell-shaped curve. There is an exponential ramp-up, reaching a rounded peak, like a roller coaster, and then a symmetrical, equally rapid drop-off to zero. Prices didn’t appear anywhere in Hubbert’s equations. Their logic was supposed to work regardless of changing incentives or human innovations.

And, in fact, the logic did seem to work. Based on his estimate of the total amount of U.S. crude oil already used up and the amount he thought was remaining, Hubbert figured that oil discovery would soon become much more difficult, and that the domestic production peak would arrive sometime between “about 1965” and “about 1970.” Peak oil fans who talk about Hubbert’s theory never mention the wiggle room in his forecast, and even critics don’t seem to be aware of it.

They also don’t mention that it was predicated on a total estimate of U.S. oil reserves, including those already extracted, as being somewhere between 150 billion and 200 billion barrels. Hubbert preferred the lower figure—which, if it had been accurate, would have seen the last teacup of oil solemnly drawn from the last working American oil well in the year 1987.

But U.S. oil production did, in fact, peak in 1970 at 3.5 billion barrels; and since then, it has, in fact, mostly declined at about the same rate it initially grew. The curve, until recently, looked enough like the one Hubbert drew to provide an impressive suggestion of theoretical power. That has spawned a veritable library of pessimism, with figures like Gwynne Dyer and Jeff Rubin warning that the world, too, counts as a “region.” Once global peak production is passed, they argue, that is the signal that there is about as much oil left to be extracted as we have already taken out.

And the decline is inherently terminal—monotonically decreasing, a mathematician would say. Production can never again rebound. The world will be left with a growing population battling over an ever-dwindling resource that is the irreplaceable key to its economy. Cue global war, mass starvation, genocide, etc.

So should we all be investing in riverfront land and ammo and developing a taste for squirrel meat? Thus far, attempts by Hubbert’s followers to imitate the master and project the world oil peak have met with the same repeated ruin as kooks’ predictions of the Rapture. Their response, more or less, is always, “Aha, but we have to be right eventually!”

Yet even now U.S. oil production is enjoying a rebound of the sort that peak oil theory characterizes as impossible. Horizontal drilling and hydraulic fracking technologies are propagating throughout the country, rehabilitating old oil fields and opening up the Bakken Formation in Montana and South Dakota. After Hubbert’s 1970 peak, oil production continued to dwindle, with the opening up of Prudhoe Bay in Alaska delivering an upward blip in the ’80s. It reached a new postwar low of 1.83 billion barrels in 2008—but then picked up. Through July, according to the U.S. Energy Information Administration, the country was on pace to produce 2.33 billion barrels in 2012.

That is already an increase of 27 per cent from what may be remembered as the Trough of 2008—with fracking still barely off the ground in oil-producing areas like California’s Monterey Shale. In short, “peak oil” has turned upside-down. That is awkward for those who insist that the descent in production, once the Hubbert oil peak has passed, must be irreversible, rapid, and accompanied by pervasive social and economic chaos. The history in Canada is perhaps equally awkward: Canadian oil production still has not peaked, as the “unconventional” tar sands and the products of fracking took over from conventional oil with a smooth, easy gradualness that didn’t factor into the catastrophists’ plans at all.

The North American oil and gas business is still coming to grips with the possibility of an Indian summer. Estimates of technically recoverable natural gas in the U.S. were in the order of a quadrillion cubic feet in 2003 and 2004. Today, thanks to fracking, the best guesses range from twice that to 3½ times. In 2000, Canada and the U.S. were readying infrastructure for massive imports of liquid natural gas (LNG); now there are hopes of LNG export business. Meanwhile, the Bakken play has delivered a proof-of-concept for billions of barrels of “tight oil” that could equal almost half the remaining onshore conventional supply.

In short, the immediate North American energy future is likely to look a lot like the past: reports of the death of the SUV, commercial aviation and the suburbs were exaggerated. Moreover, the environmental freight is being paid. As environmental writer Bjorn Lomborg recently pointed out in Slate, American utility companies have executed a massive switch from coal to natural gas, reducing total national carbon dioxide emissions by at least 400 megatons a year—“about twice the total effect of the Kyoto Protocol . . . in the rest of the world.” Per-capita CO2 is down to Eisenhower-administration levels.

As the U.S. defies oil-patch decline, the prestige of global peak oil theory must inevitably evaporate. Fracking has, as yet, barely gotten a toehold abroad; it faces high regulatory hurdles and exaggerated fears in many places. But no one really believes that China, to take only the most obvious example, will let itself be influenced by a few low-budget documentaries. The new talk of increasing American energy self-sufficiency sets a much more powerful example, as do the environmental numbers. China is just beginning to apply Western technology to its large reserves of shale gas and shale oil.

Academic economists never did buy into peak oil. It is hard to get them to accept a model of resource extraction that doesn’t give at least an implicit role to price signals. The University of Calgary’s John Boyce is one of the few economists who has put the Hubbert model to serious statistical tests. They are fairly obvious ones that, if peak oil had been taken more seriously by his profession, would have been performed 40 years ago. Hubbert’s curve turns out to be not much use as a source of predictive power—the ultimate test of any scientific hypothesis. It is not only that Hubbert’s own 1956 estimate of remaining U.S. oil was much too low—this turns out to be a general feature of his oil-extraction model, no matter where you look in the past and no matter what region you study.

It is also true no matter what non-renewable resource you happen to look at—Hubbert’s “law” failed for coal, which used to be the global economy’s “irreplaceable” fossil fuel, and it fails for other minerals. Boyce even cheekily applied “Hubbert peak” logic to agricultural production, which has no cumulative upper bound at all, and showed that a motivated catastrophist could, on the basis of world statistics, use the model to generate a bogus prediction of imminent “peak food.”

Part of the reason the peak oil hypothesis keeps hanging around, Boyce showed, is that Hubbert’s doomsaying successors operate with a pretty movable set of goalposts. When estimates of future oil reserves increase, theorists like Colin Campbell are quick to claim jiggery-pokery on the part of OPEC. (It is not that OPEC is above that sort of thing, and individual exporters have been caught red-handed fudging reserve estimates, but in general it is in the interests of folks sitting on oil for everyone to believe that it is scarce.) Less justifiable is the tendency to simply discard inconvenient data from the distant past that would throw off the model. Hubbert’s estimate of the U.S. peak was calculated using production figures beginning only in 1930, though he had access to a longer series, and later theorists have repeated the practice.

What is most comical about the popular peak oil phenomenon is that Hubbert was much more of a natural optimist than his acolytes. You would never know, seeing the uses to which his theory is applied, that his grand-scale vision of the human energy future originally had a happy ending. In the 1956 paper, he discussed both shale oil and the Canadian oil sands, showing that he understood their scale and promise. Moreover, he noted that “by means of present production techniques, only about a third of the oil underground is being recovered . . . secondary recovery techniques are gradually being improved so that ultimately a somewhat larger . . . fraction of the oil underground should be extracted than is now the case.” That is a clumsy but otherwise excellent description of fracking.

But all of that, Hubbert observed, is small potatoes. The title of the paper he delivered, which is something else his fans often skip over, was “Nuclear Energy and the Fossil Fuels.” Hubbert gave his talk in March; the world’s first commercial nuclear reactor, Calder Hall, would not be switched on by Queen Elizabeth II until October. But the geologist’s discussion of uranium and thorium was well-informed, and even at that early date it was clear “that there exist within minable depths in the United States rocks with uranium contents . . . whose total energy content is probably several hundred times that of all the fossil fuels combined.” On the scale of millennia, Hubbert said, “the discovery, exploitation, and exhaustion of the fossil fuels will be seen to be but an ephemeral event.”

In the short term, however, the hydrocarbon barons will still count. Wind power in its vanguard country, Germany, is confirming many of the problems that fossil-fuel types foresaw with relying upon it as a source for steady commercial-scale electrical power. Put simply, it cannot provide any such thing. Old-fashioned carbon-emitting sources must make up for periods when the weather does not co-operate, and Chancellor Angela Merkel is involved in a terrible political fight over who will cover the added costs.

The renewables revolution is unlikely to arrive until mass energy-storage technologies that could alleviate the problems of connecting solar and wind to the grid prove themselves ready for prime time. There are two kinds of systems that are broadly proven: ones that pump water uphill, turning electricity or heat into positional energy that can be liberated later by letting the water run the other way, and techniques for compressing air and storing energy underground as pressure. Unfortunately, both kinds of “battery” are landscape-dependent. Pumped-water storage requires a pair of matching reservoirs, and compressed-air storage is normally implemented in abandoned mines.

The ideal electrical “battery” for pairing with wind farms and solar facilities would be, well, a battery. Research into energy storage is not yet flying forward with the same Moore’s Law haste as computing power. Techniques for grid-level electricity storage must not only be able to contain huge quantities of energy in a space of practical size—they have to be able to release it at an acceptable power rate on demand, and to remain efficient over many cycles. The batteries being researched now are, in many cases, jumbo versions of ones you might have in your home: lead-acid, nickel-cadmium, and lithium-ion are all candidates. But the bankruptcies earlier this year of two U.S. energy-storage companies, battery manufacturer Ener1 and flywheel experimentalists Beacon Power, have left a bit of a stench in the tech investment community.

With policy-makers still ambivalent about nuclear alternatives in the wake of Japan’s Fukushima disaster, it is looking as though the world is stuck with fossil fuels for a while yet. But with the fracking revolution increasing the supply of natural gas to God-knows-how-much, the opportunity is present for industry to shift down the ladder of environmental harm from coal to methane.

For the ordinary consumer, Google’s driverless-automobile software may actually begin to change lives and cityscapes before promising new forms of energy. Driverless taxicabs—whatever their engines happen to run on—might extend some of the eco-benefits of public transit to the suburbs, minimizing the footprint of parking lots in urban cores.

A slow shift to robo-chauffeurs might not seem very glamorous compared to the wildest of peak oil fantasies: a romantic reversion to pre-industrial life, perhaps, or multi-sided atomic wars over the last of the oil fields. What seems most certain is that even those who support the intellectual peak oil fad will quietly and politely move on once its problems grow too self-evident.

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