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Peak Oil 2005?

You are now in the pre-peak oil awareness zone. Over a dozen books have been written. Peak Oil websites have sprung up like one of those oil gushers that used to be common about 50 years ago. Even the mainstream media outlets have let Peak Oil have its say on their pages.

What can we say other than let's hope Peak Oil duly arrives in the 12 months or so and not disappoint us all. It would be rather embarrassing if this defining event delayed itself into next decade and the subject has to undergo the equivalent of water injection to keep the discussion flowing! The attention span of a world, nation and individual only goes so far after all.

In that light, could Peak Oil awareness be approaching a kind of intermediate peak of its own as the discussion level and size of google hits increases by the day? They say we can't predict when Peak Oil will actually rollover, so when should Peak Oil Awareness rollover? Ideally, it peaks itself when the job is done. When energy conservation measures have been put in place, alternate energy sources are beginning to establish themselves and society has made some kind of orderly transition. That is, of course, decades away. What we don't want is a false peak before the real one.

In fact, the upslope of Peak Oil Awareness has largely coincided with the upswing in oil prices. In 1997, we saw the publication of the first Peak Oil book by Colin Campbell entitled "The Coming Oil Crisis". Almost prophetically, oil prices hit their major low of $10 the following year and inexorably began their rise to their recent record high of $60. Yet no one is saying that 1998 was the peak year for crude oil production - it subsequently rose by over 10 million barrels per day.

So what is the interest in Peak Oil riding on? It is riding on two things. First, it is riding on the analysis and conclusions of experts such as Colin Campbell, Richard Deffeyes, Matt Simmons and others. In that sense, it is future oriented, the evidence is projection and analysis based on current data. This is and should be the most important reason for increasing interest.

Second, it is riding on the 500% rise in crude oil prices we have witnessed since 1998, this is past-oriented. Not all of this rise is directly attributable to Peak Oil. People only began to question the received wisdom when crude oil broke above the "acceptable" price range of $30-$40 a barrel. What has contributed to the rise is the recovery of the Asian economies since their 1997 currency crises, the emergence of post-Maoist China, the peaking of various non-OPEC countries and the destabilisation of Iraq.

So, aside from analysis of reserves, there is nothing like high oil prices to stir people's interest in Peak Oil. If oil prices had stayed in the $30 dollar region since 1998, I would not be writing this blog entry today and perhaps not even have a blog. Since the intermediate low of $18 in 2001, the flow of Peak Oil literature began to pick up and now seems to be at saturation levels. Richard Heinberg published his book "The Party's Over" in April 2003 as crude oil was coming off a new $40 peak. This was followed by Deffeyes' book in August with oil climbing back up over $30.

What can be made of these two parallel curves of oil price and peak oil literature? The most important thing that can be said is that we are in a situation where the oil price is responding to the continual decreasing of production spare capacity. This is an event prerequisite to Peak Oil. Crude oil prices do not begin to rise when oil production hits a peak. Rather they begin to rise when it is perceived that spare capacity may be dwindling in an unsustainable manner. When the Herald of diminishing spare capacity gives his message and departs, then King Peak Oil arrives in all his terrible force.

With that in mind, I note that more and more commentators are predicting this year as the "Big Rollover". Commentators like Richard Deffeyes, Matt Simmons and T. Boone Pickens have targetted 2005 as the year of peak oil. Richard Deffeyes has backed his prediction with analysis based on R/P projections. Matt Simmons no doubt has factored an imminent peak in Saudi production into his calculations. As for the others, I cannot say, it is likely that the majority of commentators are merely copying what one or two experts are saying and the message has propagated outwards accordingly in the true fashion of a meme.

As the price of oil rises more and more, so the pessimistic proclamations rise in unison and the whole affair takes on a life of its own. As the message gains a bigger audience, so commentators feel more confident in their assertions. However, at the core of the "2005 rollover" anthem will be no more than a few experts whose analysis came to that conclusion.

This year may be the year that global oil production peaks forever but caution is advised lest advocates of Peak Oil turn out to be wrong like their oil-shortage predecessors of other decades. This can happen in two ways.

First, recession can come and hit demand for oil based products. This can happen independently of oil prices and is likely to be triggered by the current and global real estate bubble. If that bubble bursts this year or next, the loss of paper wealth will propogate through to consumer spending and hence a contraction of GDP. When the recession runs its course, we will find that spare capacity has built up again through canned oil drilling projects and decreased production. That new capacity could be enough to foster a new demand record, but probably not too much higher than current demand.

Secondly, the high price of crude itself can draw back demand. We have noticed the moves to retrench energy consumption in countries such as Nicaragua and Indonesia. This problem is particularly noticeable in governments offering energy subsidies. This decreased consumption is not so obvious in cash-rich nations such as the USA or the EU, but it is undoubtedly there in a smaller measure.

In fact, a two pronged attack of high oil prices and the bursting of the real estate bubble may well lead to a recession in 2007 and a postponement of the downside of Hubbert's Peak. Only time will tell.

My advice? Peak Oil is coming soon, no doubt about it in my mind. But like religious groups who set the date for the Second Coming only to end up looking like fools, some caution is advised. If Peak Oil is postponed for a few more years due to a recession, the number of peak oil books and websites will also decline. If that happens, the actual peak in oil production may arrive with more of a whimper than a bang as scoffers deride those who proclaimed 2005 as the day of reckoning!

Editorial Notes: There are many reasons for avoiding an obsession with setting an exact date for Peak Oil.
  • It's very hard to predict short-term trends, as Roland Watson points out.
  • It promotes unproductive apocalyptic thinking (doomsterism).
  • The "peak," when it occurs, will probably be perceived as a plateau, during which time the signals will be mixed. Historical epochs seldom come to an end with a well-marked signpost. As several commentators have observed, we will only know we've passed PO several years after the fact.
  • It distracts from the environmental degradation and climate change associated with fossil fuels.
  • It distracts from the economic/political problems associated with fossil fuels, such as US/Chinese tension over energy supplies.
-BA

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