Peak Oil is Here: Now What?

At least peak oil is here if I’ve understood what the peak oil argument is properly. And my problem with the peak oil argument is that it isn’t really very clear in itself as to what it means. From what I understand at some point we get to the end of cheap oil, we’ve only expensive oil left and then, well, and then apparently something terrible happens. But I’ve never been able to get from anyone a clear description of what it is that’s terrible that then happens.

However, we seem to have actually reached that end of cheap oil part, at least we have if this analysis is true:

Tracking data from the 50 largest listed oil and gas producing companies globally (ex FSU) indicates that cash, production and unit costs in 2011 grew at a rate significantly faster than the 10 year average. Last year production costs increased 26% y-o-y, while the unit cost of production increased by 21% y-o-y to US$35.88/bbl. This is significantly higher than the longer term cost growth rates, highlighting continued cost pressures faced by the E&P industry as the incremental barrel continues to become more expensive to produce. The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. Assuming another double digit increase this year, marginal costs for the 50 largest oil and gas producers could reach close to US$100/bbl.

It’s the marginal, not the unit or average, costs which have the greatest influence upon prices in a market. Obviously so: those supplies with the highest marginal costs will be the first to disappear if the market price drops.

So, again assuming that this analysis is correct, we seem to have come to the end of the age of cheap oil. At least, cheap oil in the sort of volume that we are used to using. This is pretty much the same as what everyone says will happen when we get to peak oil so we can I assume say that whatever will happen with peak oil should be happening now?

Which is, erm, what? Sure, the countries of Europe and North America are looking a little tired in their economic growth. But then they are still trying to escape from the effects of a near meltdown of the financial system. Something that is known to cause recessions and reduce growth.

On the other hand the global economy looks just fine. Growth continues, poor countries continue to get richer, we’re still in the middle of the greatest reduction in poverty in the history of our species.

So what is it that is supposed to happen when we run out of cheap oil and why is it that whatever it is isn’t happening now?

Forbes

7 Comments on "Peak Oil is Here: Now What?"

BillT on Thu, 3rd May 2012 1:38 am 



Forbes, another pimp for Big Oil.

To answer the last question. It IS happening now. Prices are going up because there is not enough to justify cheaper prices. The West is dying
because it’s financial system is collapsing. And that is happening because the 1/10% know the end is near. They DO understand EROEI and what it means. It means that capitalism for profit is over or at least in the ICU not to recover. The money IVs are pumping faster and faster to keep the patient alive, but the patient is still dying.

What will happen when all cheap oil is gone? A change that the world has never seen. A die off in the billions, either by famine, disease, war or all three. And a world much different from any seen before. We will be lucky to number a million in the next century. We will have technology and no way to use it. Medical knowledge and not have the means to use it. We will regress back to the days of hunter gatherers but will have nothing left to hunt or gather or to build a new civilization. All metals will be limited to the scrap we scrounge. Energy will be wood. A few may remember what those huge circular towers were, but they will know to not get within sight of one because an invisible death kills anyone who does. Yes, it will probably be a very different world for those who survive.

Gale Whitaker on Thu, 3rd May 2012 2:11 am 



I think that eventually the government will wake up and finance a switch to natural gas for transportation. When the big oil companies see the world falling apart because the price of oil is too high they will get on board with natural gas. They will hate this move because it will cut into their profits. The move to natural gas for transportation will delay the disaster predicted by BillT but in the mean time the airline industry will die which will through the world into chaos. Peak gas will coming soon.

Bloomer on Thu, 3rd May 2012 6:11 am 



I like how this site provides alternative views when it comes to the subject of peak oil.Forbes and its readers can afford to have a “what me worry” attitude towards peak oil because paying more at the gas station or more for groceries isn’t a big deal for them.
However, for the rest of us working stiffs, higher prices of goods due to higher input costs (oil) coupled with stagant wages (if you still have a job)has drastically eroded our standard of living. The economy is still in the doldrums and from what I read poised to roll over into another recession.
Clearly peak oil has arrived, and by the time it is felt by the people at Forbes the U.S. economy will be a smoking ruin.

BillT on Thu, 3rd May 2012 10:50 am 



Gale, the switch to natural gas for 220,000,000+ cars is not going to happen until there is no gas at any price an then most of them will be parked/junked. Natural gas prices are going to go up up and away as the cost of gas goes up. Big oil also owns much of the large gas resources or has contracts on them. They are not stupid. They also own the government so they will not allow anything to happen that will hurt their bottom line.

SOS on Thu, 3rd May 2012 3:10 pm 



The conversion to LGN for transportation is well under way.. Of course there is a lot of resistance to those favoring political policies creating peak and expensive oil. There is no physical shortage of energy. Peak oil is political.

Plantagenet on Thu, 3rd May 2012 5:37 pm 



The Forbes writer doesn’t even consider the possibility that high global energy prices are a major cause of the current global financial crisis. When Forbes asks “What happens next” with peak oil—the answer is “What happens next with the global financial crisis.”

BillT on Fri, 4th May 2012 3:52 am 



Dream on SOS.