In a previous blog, I mentioned the peak-oil related date of 1998 when oil hit a low of $10 per barrel. This price was linked to a maximum in spare capacity that soon followed and from where the world would begin to draw down those reserves until we reached the situation we are in today.
When and how that “peak” in spare capacity was reached was the reason for an internet search which led me to the graph shown here.
Perhaps not too suprisingly, the jump in spare crude capacity followed on from the low price. OPEC and others failed to anticipate the Asian downturn, too much oil flooded the markets and prices dropped. Excess capacity hit 5.5 million barrels of oil a day the year after the $10 low. A second peak of about 6 million barrels followed in 2002.
That moment of maximum spare capacity was nothing remarkable in itself. The world has gone through various spells of oil supply gluts and shortages as economic booms and busts exerted their control on world oil production. However, only one glut will presage the worldwide shortage that is now known as Peak Oil. That point appears to have been 1999 as excess capacity hit 5.5 million barrels per day.
Spare capacity is now at very low levels having skirted the previous low of 1990 during Gulf War I. However, as a proportion of total world demand, it is at its lowest ever level. Capacity up to this point is not responding to price movement, but there is a time lag between price peak and capacity peak as you will note from the graph. If Peak Oil has arrived, the curve of excess capacity will not head back to the multi-million barrel levels seen in previous decades.
The second date is the year of peak global production in crude oil which needs no introduction or further analysis. Multitudes are now saying nervously “Oh my! When is it going to begin?” as they read the latest articles, blogs or books for guidance.
When the third date is looked for, the even greater multitudes will be saying woefully “Oh my God! When is it going to end?!”. What is the third date in the great Peak Oil saga? It is the year in which alternate energy sources finally offset the equivalent decline in crude oil production. Prior to that date, oil production will in general keep falling but the energy equivalent delivered by solar, wind, nuclear, etc. will always be less. You can pick your own decline rate for oil, be it 3%, 5% or 10% from a peak of 90 million barrels per day and do the calculations. That period of continual energy shortfall is the “new era” of the New Era Investor newsletter.
Of course, when that year of balance is reached, the world will be consuming far less energy than it is today. Also, the long road back towards the levels of energy demand seen in the first decade of this century will look very distant and a long time a coming – if ever.
When will that year be? That is a crucial question, in some ways more crucial than when the year of peak oil begins. Resource shortfalls will then stare people straight in the face, the unrest associated with such truths will begin to build up at the family, ethnic, religious and national levels. As Samuel Johnson once said, “Death concentrates the mind wonderfully.”, concentration on energy resources will be at all time highs between our second and third dates. The sooner this third date is reached, the better it will be for mankind before something seriously fractures in the fabric of global society. My own estimate is about 2030, I hope I have over-estimate that number.
In conclusion, the first peak-oil related date passed without anyone noticing. The second year will pass with a significant minority aware of it. The expectation of the final year will be pinned on the conciousness of the vast majority.
The Bible has an apt verse for this situation: “Where there is no vision, the people perish.”. A society given over to the short-sighted dogma of material consumption has no vision and will perish. Those that follow will have the expectation of this third year held out to them as a vision of better things to come. I suggest they cling to it, the energy pilgrimage will be a rocky route.
