A short introduction to Peak Oil

We need to transition the community away from fossil fuels!

This is a message we hear often today, too often according to some. But still, it seems to progress slowly. Climate negotiations stalled in Copenhagen and since then not much has happened on the scene of world politics. People generally seem not interested enough to assert pressure on their leaders or for that matter themselves reduce their transportation and other energy consumption. And now we also have an economic crisis to take care of. We first need to get back on track with our economic growth before we can consider reducing carbon dioxide emissions, it is typically stated. And global warming is, after all, something that happens to someone else, somewhere else and some other time…

But if we again ask us why we should transition, there is another answer. Instead of focusing on the waste product of fossil fuels, the CO2 emissions that are causing global warming, there is a very good reason to look at the resource side, how much fossil fuels is left to extract and consume. And that is exactly what Professor Kjell Aleklett has done with his research team at the Division of Global Energy Systems at Uppsala University in Sweden, the last decade or so. In 2012 he released his book Peeking at Peak Oil that summarizes the results of their research and of his own experiences of the issue.

It is a somewhat different physics book to read, with historical views, anecdotes, own reflections, comments on and sometimes criticism of other experts and politicians, meetings with intelligence services(!) and some economics. But it is primarily a physics book, which is a very important point to make and the reason why you should listen more to Aleklett in the future. Energy and oil extraction, more often referred to as “production”, primarily regards physics and geology. But today it is mainly economists who “decides” the extent of future oil extraction and consumption. But no economic model contains any scenario where oil extraction will decline, after what is referred to as Peak Oil, the time of maximum global oil extraction.

But how can Aleklett and his colleagues be so certain that oil extraction will decrease in the future? The most straightforward way to estimate this is to study how much oil is found throughout history, where one finds that the largest discoveries were made in the 60′s and that it is increasingly difficult to find new sources of oil, despite investment and new technology. New oil reserves are usually found in places that are hard to access and that require hazardous deep-water drilling in the Gulf of Mexico or the Arctic when the ice melted. The easily accessible oil, the so called low hanging fruit, have already to a large extent been extracted and consumed.

By making inventories of the size of the world’s oil reserves, calculate how fast these can be exploited, make realistic estimates of future discoveries and account for other unconventional fossil energy sources, such as Canadian tar sands or natural gas from fracking, and renewable energy sources, such as biofuels, Aleklett concludes that we have major problems and not much preparedness.

So when does Peak Oil occur? You can’t really tell what the maximum extraction is until you have past the peak, but it seems that we may already have done so. Since 2005, the global extraction of oil remained at a constant level. During this plateau phase, the domestic consumption of the exporting countries increased, which means that the nations that must import oil has had to make do with a steadily declining export market. In addition, the importers China, India and Southeast Asian countries increased their consumption, a trend that is expected to continue (see the diagram below where the global oil extraction optimistically is assumed to be constant).

What then can be expected in the wake of Peak Oil? One could as well ask what consequences it already has had. Oil accounts for over 90% of the fuel to the transport sector which will be affected in the first place, which is evident at the gas pump when you fill up your car and for the airlines companies that are struggling. But it also has a significant impact on the world economy. Oil demand during the 00s has steadily increased while the extraction has not been able to follow the increase as the leading economic analysts have predicted. If supply can’t follow the demand, the price will go up and on 11 July 2008, the oil price peaked at 147 US $/barrel, which most likely was the trigger for the global economic mayhem and crisis, starting with the US subprime crisis:

”In the United States before the financial crisis in 2008 it was noted that it was these poorer, fringe-dwelling households that were the first to be affected by high oil prices. The more than doubling of the oil price from 2005 to 2008 took a huge toll on the budgets of these households. One way for them to cope was to abandon their mortgage payments and give their house keys back to the banks. Thus, Peak Oil and the financial crisis were intimately linked.”

The relationship between oil consumption and economic growth is complex, but the two do correlate to each other. And that is of course not consistent with the constant economic growth that is a prerequisite for the current economic system to stay healthy. Some would argue that oil extraction can always be increased through economic instruments such as increased investment and technological innovation, should the economy so require. Aleklett, on the other hand, regards the economy as something that has to adapt to the physical reality. Economy does after all mean “householding”.

Peak Oil also has some major political implications. EU (as a whole), and the US leads the consumption league and both have major economic problems, which implies a global shift in power that now also starts to have social consequences. Also consider that the two, by far, largest oil exporters Saudi Arabia and Russia, one can understand why Western politicians prefer not to offend them unnecessarily, such as calling them dictators or the like. Not even Obama complained when Saudi Arabia went into neighboring Bahrain to crack down on democracy activists. And this spring we have seen Russia using the “gas-weapon” as a means of gaining political influence on its neighboring countries, such as Ukraine, as well as on the EU. So it really is an inconvenient truth that Aleklett delivers.

But is it really a truth? Because it is far from all who agree, for example most economists, analysts in the oil business and political advisers. But unlike others Aleklett’s group have produced a solid body of research in the form of a large number of peer-reviewed articles and doctoral dissertations. Neither are they funded by any oil company or allow themselves to be influenced by political interests. Above all, they base their estimates on calculations that they present openly instead of making guesses that the world’s energy policies until now have been based on. So if you disagree with the conclusions or if you believe that the alternative energy source X will solve everything and save the day, the obvious counter-question should be: “How many millions of barrels of oil per day do you anticipate that X can replace and how quickly can X be developed?” A useful overview of alternative energy sources is given in Richard Heinberg’s short booklet “Searching for a miracle”, that is available online.

After this very limited and at most incomplete summary, it can be concluded that we must adapt to a future with less energy and we must do it quickly. Not because we should, but because we have to. Our inability to transition primarily affects ourselves and in a very near future. It is difficult to say how soon, but a lot has happened to the economy in just the last five to six years after the beginning of the economic crisis. Here a 5 to 10 year horizon is typically discussed, rather than the 50 to 100-year perspective of the climate change issue.

A final reflection from Aleklett on the future:

“…but what the world needs most is a global leader who understands systems thinking.”

I would put it this way : The world needs many leaders who can step out of the conventional “business as usual” thinking, that are at least meta-systematic thinkers and that can take perspectives on physics, economics, politics, security, etc. and their interrelatedness.

Here follows some psychological perspectives on Peak oil, and in particular an adult developmental perspective.

4 Comments on "A short introduction to Peak Oil"

Kenz300 on Sat, 3rd May 2014 7:24 am 



The fossil fuel industry is doing all it can to limit competition from alternative energy sources. They will fight any transition to safer, cleaner and cheaper energy sources till the end.

The cost of oil, coal and nuclear keeps rising and causing environmental damage. Soon the cost of extraction will limit their competitiveness.

The price of wind and solar have dropped by 50% in the past 5 years and continue to get cheaper every year. Once installed there are no future monthly fuel costs.

The transition has begun and is now speeding up as everyone begins to realize that alternative energy can be produced cheaper than fossil fuels. Even large corporations are now beginning to show concern over Climate Change are getting on board with alternative energy sources.

The Time for Wind and Solar Energy Is Now

http://www.renewableenergyworld.com/rea/news/article/2014/05/the-time-for-wind-and-solar-energy-is-now

Cloud9 on Sat, 3rd May 2014 8:19 am 



The entire system is structured for exponential growth. It cannot be jury rigged to accommodate exponential contraction. A leader cannot save us. No politician can wave a magic wand and put more oil in the ground. Whoever rises to the position of leadership is vetted by the vested interest of the old system. They will cling to the old paradigms like grim death. The political and economic system cannot be scaled back. The Fed cannot stop printing. Government cannot contract. More and more people will move to public assistance. Government will become more totalitarian.

Nothing will change until the whole of the nation is Detroit.

If you want to save yourself, plant a garden.

GregT on Sat, 3rd May 2014 11:22 am 



The transition is already well underway. A rapidly growing divide between the rich and the poor, a shrinking middle class, stagnant wages, double digit inflation in food and energy costs, and a system mired in debt.

There will be no transition to a techno fantasy utopia of ‘renewable’ energy production. The current trends will continue, as more and more people will be forced to live with less and less.

Our current systems require exponential growth, and as that growth continues to decline, those systems will falter and finally collapse inward on themselves.

A new steady state sustainable system, might rise from the ruins, but it won’t happen until after the current system has fully collapsed, and it won’t happen overnight.

If we go too far, and render the Earth’s climatic systems fully into chaos, then all bets are off for human survival.

Perk Earl on Sat, 3rd May 2014 5:29 pm 



“The Fed cannot stop printing.” That’s an interesting point you make, Cloud9.

The Fed just reduced QE another 10 billion to 45 billion a month in bond purchases. So they have tapered from 85 to 45b a month, however what came as a big surprise to many in the mainstream was the first qtr. of this year came in at a paltry .1% GDP. Just barely above contraction. It was blamed on the cold weather in the East, although the West had a more mild winter than usual.

I think the reduction in QE is already having a negative effect on GDP as reflected in the .1% growth, and QE is now only about 1/2 way to tapering to zero. If they continue to taper 10b a month, then after this next qtr. QE will be down to 15b a month. In July 2nd qtr. GDP will be offered up and if it is a negative number, I wonder if the Fed will have to eat crow and decide to up bond purchases again, in what may end up in a permanent QE program to replace cheap energy. Of course permanent that is until hyper-inflation ruins the party.

With the govt. having reduced overall budget expenses and QE tapering, while oil price remains high, it seems likely the US will slip back into recession. Whatever happens, it will make for great theatre watching this unfold.