A Peak Oil credo

March 25, 2007

This morning I took a few minutes to record my Peak Oil thoughts. I did so in a series of “I Believe” statements. I think this is generally a good exercise, if only to explicitly formulate the assumptions I filter new information through.

I do not claim that anyone else should share these beliefs. You will note that I offer no arguments to sway others to my “camp”. I offer no defense of them.

They have evolved considerably in my time lurking at TOD [The Oil Drum]. I expect that they will continue to do so. Thus, they represent a snapshot of one man’s view of the near future.

I am enclosing them, below, for your amusement.

  1. I believe that light sweet crude production peaked several years ago – probably in the 2000 era. This is mostly a refining issue, and one that can be fixed with sufficient investment in existing refineries to process available grades.

  2. I believe Deffreys was probably right about the peak of C+C [conventional crude + condensate] production being the fall of 2005. Since C+C is the overwhelming single component of all liquids production, and it is now in decline, we entered the bumpy plateau at about the same time.
  3. I believe that the first crossover event, where demand bumped up against available supply, ocurred in 2005. We had a round of price increases that resulted in demand destruction. Prices continued to climb into 2006 based on market momentum. The new floor of $60 was established. I define “bumping up against available supply” to mean that surplus capacity dropped to an unacceptably low level.
  4. I believe that 2006 was an unusually quiet year as far as energy issues went. A relatively mild winter lead into a fairly mild summer (as far as air conditioning loads were concerned). There was almost no hurricane activity, due to an El Nino pattern. The first six weeks of the 2006-2007 winter were the warmest on record. Rebel activity in Nigeria was constant at a low level. We had a pipeline interruption from Alaska that was quickly repaired. The Israeli/Lebannon conflict was brief and did not spread. There was a great deal of feel-good propaganda leading up to the election. Prices held at $60.
  5. I believe that quiet years will be the exception going forward.
  6. I believe that we are now a year and a half into the bumpy plateau of all liquids production.
  7. I believe that actual peak, which may have already ocurred, will not be more than a 5% increase in today’s production. For all practical purposes, peak is now.
  8. I believe that the relevant issue is not when peak will occur, but how long we can expect to remain on the bumpy plateau, and how rapidly we drop off it.
  9. I believe that the bumpy plateau will not be symmetric around the peak. Peak may occur at any point in the plateau, including near the beginning or the end. This is due to the fact that the ultimate limit will not be geologic, but above-ground factors. We will approach but never quite reach the geologic limit.
  10. I believe that 2007 will witness another crossover event, and we will see a large increase in prices, another round of demand destruction. A new, higher support level will be established for prices. I would guess that this would be in the $80 range.
  11. I believe that production estimates made by reputable Peak Oilers are probably pretty good, but that decline rate assumptions are overly optimistic. Projecting historical rates of decline into the next couple of decades paints too rosey a picture. Historical rates of decline were dominated by fields which were developed with traditional techniques. We have seen, in Yibal, in the North Sea, and in Cantarell, very high rates of decline associated with modern production techniques. As the weighted mix of producing fields trends towards fields developed with these techniques, we will observe the overall decline rate to be higher than historical norms.
  12. I believe, based on the above and bottom-up analysis such as the Megaprojects list, that the bumpy plateau will be relatively short. We will begin to drop off it as soon as 2010. Above-ground factors could accelerate that.
  13. I believe that the result in industrialized nations will be a series of crossover events, of increasing amplitude and frequency. Since there is probably some minimum time that the market needs to accomodate a spike in prices with demand destruction, the events will eventually merge into a fairly continuous process. This will look like a super-inflation (not quite hyper-inflation) in energy prices. Perhaps on the order of 30%-40% per year, compounded.
  14. I believe that demand destruction sufficient to match the decline rate past the bumpy plateau will require an ever-deepening recession/depression that eventually reaches economic collapse.
  15. I believe that when economic collapse finally occurs worldwide that consumption will drop sharply, and create a cushion of surplus capacity, even as production continues to decline.

    To quote Dmitri Orlov:

    An economy does not collapse into a black hole from which no light can escape. Instead, something else happens: society begins to spontaneously reconfigure itself, establish new relationships, evolve new rules, in order to find a point of equilibrium at a lower rate of resource expenditure.

    Prices will drop. The spin will be that “the crisis is over” and “good times are just around the corner”.

  16. I believe the Peak Oil is only one of the major challenges facing industrial civilization. As serious as it is, history may record it as an “also-ran”. In America they are, in temporal order: recession, natural gas shortages, peak oil, collapse of the economy, collapse of the political order, climate change. Other nations will have a somewhat different order of occurrance based on their particular circumstances.
  17. I believe that we are not tens of years away from these things, but (perhaps several) tens of months. That before the lumbering political system, which includes the corporatocracy, can be pressed into action we will reach a point, again to quote Dmitri Orlov, where “No long-term planning [is] possible. Large new projects [are] not even considered.”.
  18. I believe that solutions, where they can be found at all, are to be found at the individual and community levels.

Tags: Fossil Fuels, Natural Gas, Oil