The peak oil crisis: The 4 Facets of Peak Oil

March 1, 2007

Looming just over the horizon are four great storms that soon will have a major impact on nearly all the world’s peoples and their descendents for decades to come. We know these storms are coming, for we can clearly see their outlines and some are already beginning to feel the winds.

We don’t know the exact timing nor the order of these storms’ arrival. We do know that the order in which they come will be important to how these storms interact with what our lifestyles will be like in the years ahead.

The first storm is what we talk about in this column: the balance between oil depletion and production from new oilfields that will determine how much longer the world’s economy can continue in its present form. For the last 140 years, the world has had nearly uninterrupted access to a virtually unlimited supply of oil. Except in times of war and similar crises, if you could pay for the oil, you could have as much as you wanted. Soon, this will not be the case

Our second storm, a corollary of the first, is the balance among the ability and willingness of oil exporters to export, the price of oil, and the demand and ability to pay of oil importers. This is not quite the same as the availability of oil, for there will come a point when today’s oil exporters will not be shipping the desired quantities of oil to today’s importers. This reduction in size of the oil trade can be for any of several reasons.

As production from the giant Cantarell oilfield is dropping rapidly, many forecast that Mexico soon will be out of the oil exporting business. This is not because Mexico’s wants to stop exporting to the US; they simply will not have excess oil to sell abroad. Here we will have a component of storm one directly causing storm two – the reduction in world exports.

As Mexican exports, and those of other countries, start to dry up, either they will be replaced by increased production elsewhere in the world, or the richer countries will simply outbid the poorer ones for the available oil. There are many other reasons, besides inability to maintain production, which might cause a reduction in the oil trade. Terrorists might blow up some vital oil installation. Iraq could deteriorate to a state where no oil is available for export. Or Iranian relations with the West could go really sour. In these cases export flows could slow for reasons other than oil depletion.

Our next big storm is global climate change, which can interact with peak oil and export flows in many ways. Large temperature-induced hurricanes have and could continue to tear up oil production and import or export facilities. A really large and well-placed hurricane might establish the peak of peak oil.

However, there is another side to the “storm” of global warming. Most governments and world organizations, except maybe ExxonMobil, are saying that we really need to do something “serious” and fast about global warming. Serious and fast can only mean major cutbacks in the consumption of non-carbon sequestered fossil fuels. Here the problem is that short of a scientific miracle, large reductions in fossil fuel consumption are almost certain to cause serious economic problems.

For those for whom economic growth has become the Holy Grail of civilization, deliberately slowing economic growth is unthinkable. There are many, who believe they would rather see their grandchildren bake, starve, drown or what have you, than deliberately crash the stock markets with some fool emissions-reducing cap or tax.

Although it does not seem imminent at the moment, somewhere along the line governments are going to start capping the release of carbon from the burning of fossil fuels unless peak oil production or “peak oil exports” do it first. Should governments mandate major reductions in fossil fuel consumption before the geological or geopolitical peak in world production, then we could have global warming induced peak rather than a geological or geopolitical induced peak.

Our final storm is a great economic recession. It’s clear much is out of balance in the world’s economy— deficits, money supplies, world trade, and exchange rates to name a few. Should a major world recession or worse set in before oil shortages begin, then obviously the demand for oil will be reduced, production will slow and oil reserves would be stretched out.

The other side of the coin says that major reductions in oil supplies for either geologic or geopolitical reasons will undoubtedly cause serious economic reverses.

So there we have the great four part mix that will be a major part of all our futures: peak oil production, peak oil exports, global warming, and economic recession. They are all coming and they are all tied inextricably together. It is not yet clear which will affect our lives first. Right now it looks as if recession and peak exports are in the lead but things are changing rapidly. The only thing that’s sure is when these four storms have passed through, life as we have known it will never be the same.

Tom Whipple

Tom Whipple is one of the most highly respected analysts of peak oil issues in the United States. A retired 30-year CIA analyst who has been following the peak oil story since 1999, Tom is the editor of the long-running Energy Bulletin (formerly "Peak Oil News" and "Peak Oil Review"). Tom has degrees from Rice University and the London School of Economics.