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Whatever Happened to Peak Oil?

A few months from now, this blog will complete its tenth year of more-or-less-weekly publication. In words the Grateful Dead made famous, it’s been a long strange trip:  much longer and stranger than I had any reason to expect, certainly, when I typed up that first essay and got it posted on what was still, to me, the alien landscape of the blogosphere.

Over the years since that first tentative post, the conversations here have strayed into some remarkably odd territory:  the history of apocalyptic ideas, the nature of magic, the horror fiction of H.P. Lovecraft, and a good deal more.  All through its vagaries, though, this blog’s central focus remains what it has been since shortly after its 2006 launch: the difficult but necessary task of facing up to the end of the  arrival of hard limits to growth, and the collapse of all those fantasies of perpetual progress that so many people today still use to keep themselves from thinking about the future ahead of us.

That said, my longtime readers may be wondering about the relative absence in recent posts of one of the core themes of this blog’s earlier days. Yes, that would be peak oil.

For those who’ve come to this blog recently, it maybe helpful to point out that this simple phrase refers to a complicated concatenation of ideas. First, despite claims made by rap musician BoB and the few other flat-earthers out there, I think most of us are aware that the Earth is a sphere a little more than 7900 miles across. That means, among many other things, that the Earth contains a finite amount of petroleum—and this in turn means that each barrel of petroleum that gets pumped out of the ground brings us closer to the point at which there’s no more left.

Second, getting oil out of the ground isn’t just a matter of sticking an iron straw into a hydrocarbon milkshake. There aren’t big underground lakes of oil; what you’ve got instead are cracks and pores in solid rock through which oil oozes slowly. Thus production from an oil well usually starts off slowly, rises to a steady flow, and then gradually dwindles away to a trickle as the available oil runs out. Oil fields follow much the same curve: the first successful wells bring up oil, many more wells get drilled, and then you drill new wells to make up for declining production in the old ones, until eventually there are no more places to drill and you’ve got a played-out field. The point at which you can’t drill enough new wells to make up for declining production from the old ones is the point at which the output from the field peaks and begins to decline.

Third, the same thing is true of what geologists call oil provinces—these are regions, such as the Marcellus shale, where you can find a bunch of oil in a bunch of fields that all have more or less the same geology. The reason’s the same: in an oil province, just as in an oil field, production increases at first as new wells go in, then peaks and begins to decline as you run out of enough places to drill new wells to make up for the depletion of the old ones. Apply the same logic to entire countries, and to the whole Earth, and it works just as well. The phrase “peak oil” is a label for the point at which drilling new wells can’t keep up with the depletion of existing wells worldwide, and the overall production of petroleum worldwide begins to decline.

That’s all very straightforward. Back in the late 1990s, when a handful of researchers started to pay attention to the widening gap between the rate at which oil was being pumped out of existing fields and the rate at which new fields were being discovered, that straightforward logic led most of them to equally linear conclusions.  At some point in the near future, they suggested, petroleum production would peak and then tip over into irreversible decline, petroleum prices would soar through the skylights, and a cascade of difficult consequences would promptly follow.

That latter point was by no means an arbitrary assumption. Petroleum then as now accounts for the largest share of global energy consumption, amounting to roughly forty per cent of all energy, including almost all the energy used in the transportation sector. Claims that petroleum products could easily be replaced by other energy sources ignored the hard reality that most other energy sources were already being used as fast as they could be extracted. Claims that imminent technological breakthroughs would surely keep any of these things from happening ignored the equally hard reality that most of those supposed breakthroughs had been tried repeatedly in the past and hadn’t worked.

All this had been discussed at great length back in the 1970s, when the United States hit its own all-time production peak and began skidding down the far side. The issue of peak oil got swept under the rug during the Reagan era and ignored by almost everyone thereafter; by the time the alarm was finally sounded again in the late 1990s, it was painfully clear that most of the time that would have been needed to get ready for peak oil had already been wasted. The result, according to most serious peak oil researchers at that time, would be a traumatic era of economic, political, and cultural turmoil in which a global civilization used to depending on oceans of cheap abundant crude oil got squeezed by steadily decreasing supplies at steadily soaring prices. That was the peak oil standard scenario.

Those of my readers who know their way around the apocalyptic end of the blogosophere, even if they weren’t paying attention at the time, will have no problem figuring out exactly what happened from that point on. Inevitably, the base case was turned into a launching pad for any number of lurid prophecies of imminent doom. The common contemporary habit of apocalypse machismo—“I can imagine a cataclysm more hideous and all-encompassing than you can!”—kicked into gear, and the resulting predictions interbred like hyperactive bunnies until the straightforward mathematics of peak oil were all but buried under a vast tottering heap of giddy fantasy.

Now of course none of those lavishly imagined catastrophes happened. That’s hardly surprising, as identical fantasies have been retailed on every imaginable provocation for decades now—swap out the modern details for their equivalents in previous eras, for that matter, and you can replace that word “decades” with “centuries” and still be correct. What did manage to surprise a good many people is that the standard scenario didn’t happen either. That’s not to say that everything was fine and dandy; as we’ll see, quite a bit of the economic, political, and social turmoil we’ve seen since 2005 or so was in fact driven by the impact of peak oil—but that impact didn’t follow the linear model that most peak oil writers expected it to follow

To understand what happened instead, it’s necessary to keep two things in mind that were usually forgotten back when the peak oil scene was at white heat, and still generally get forgotten today. The first is that while the supply of petroleum is ultimately controlled by geology, the demand for it is very powerfully influenced by market forces. Until 2004, petroleum production worldwide had been rising steadily for decades as new wells were brought on line fast enough to more than offset the depletion of existing fields. In that year, depletion began to catch up with drilling, and the price of oil began to rise steadily, and two things happened as a result.

The first of these was a massive flow of investment money into anything that could make a profit off higher oil prices. That included a great many boondoggles and quite a bit of outright fraud, but it also meant that plenty of oil wells that couldn’t make a profit when oil was $15 a barrel suddenly looked like paying propositions when the price rose to $55 a barrel. The lag time necessary to bring oil from new fields onto the market meant that the price of oil kept rising for a while, luring more investment money into the oil industry and generating a surge in future supply.

The problem was that the same spike in oil prices that brought all that new investment into the industry also had a potent impact on the consumption side of the equation. That impact was demand destruction, which can be neatly defined as the process by which those who can’t afford something stop buying it. Demand destruction also has a lag time—when the price of oil goes up, it takes a while for people to decide that higher prices are here to stay and change their lifestyles accordingly

The result was a classic demonstration of one of the ways that the “invisible hand” of the market is a good deal less benevolent than devout economists like to pretend. Take the same economic stimulus—the rising price of oil—and factor in lag times on its effects on both production and consumption, and you get a surge in new supply landing right about the time that demand starts dropping like a rock. That’s what happened in 2009, when the price of oil plunged from around $140 a barrel to around $30 a barrel in a matter of months. That’s also what happened in 2015, when prices lurched down by comparable figures for the same reason: surging supply and plunging demand hitting the oil market at the same time, after a long period when everyone assumed that the sky was the limit.

Could the bloggers and researchers in the pre-2009 peak oil scene have predicted all this in advance? Why, yes, and as a matter of fact a few of us did.  The problem was that we were very much in the minority. True believers in an imminent peak oil apocalypse denounced the analysis just outlined with quite some heat, to be sure, but I also quickly lost count of the number of earnest, intelligent, well-informed people who tried to convince me that I had to be wrong and the standard scenario had to be right.

The conventional wisdom in the peak oil scene missed something else, though, and that’s had a huge impact on this most recent boom-and-bust cycle. The convenient label “petroleum” actually covers many different kinds of hydrocarbon goo, and these are found in many different kinds of rock, scattered unevenly across the surface of the planet. Some kinds of goo are cheap to extract and refine, but many more aren’t. Since oil companies are in the business of making money, they quite sensibly started out by going after the stuff that was cheap to extract and refine. When that ran out, they went after the stuff that was a little more expensive, and so on.

All this seems ordinary enough—after all, every other mineral resource has gone through the same curve; the low-grade taconite that goes into today’s iron smelters has a tiny fraction of the amount of iron per ton of ore that the lowest grades of commercially mined iron ore had a century ago. There’s a little problem here, though, which is that the difference in concentration between today’s taconite and yesterday's better ores is made up by adding energy to the equation. It takes vastly more energy to make a steel I-beam today than it did in 1916, and most of that is a function of the fact that the lower the quality of ore, the more energy you have to invest in getting out each pound of iron from it.

This is also true of petroleum—but there’s a catch, because the point of extracting the petroleum in the first place is that you can get energy out of it. It’s at this point that we start talking about net energy.

Net energy is to energy what profit is to income. To get, let’s say, one barrel of oil equivalent (BOE) of energy, you have to invest a certain amount of energy in the process of extracting and refining it, and the amount you have to invest varies dramatically depending on what kind of hydrocarbon goo we’re talking about. What oilmen call “light sweet crude”—that is, petroleum that’s relatively high in light fractions, and free of sulfur and other contaminants—from the sort of shallow wells that built the US oil industry has a net energy of anything up to 200 to 1: in other words, less than a quart out of each 42-gallon barrel of oil goes to paying off the energy cost of extraction, and the rest is pure profit.

As you slide down the grades of hydrocarbon goo, though, that pleasant equation gets replaced by figures considerably less genial. Your average barrel of oil from a conventional US oilfield today has a net energy around 30 to 1, meaning that just under a gallon and a half of the oil in each barrel goes to pay off the energy cost of extraction. That’s still good, but it’s nothing like as good.

The surge of new petroleum that hit the oil market just in time to help drive the current crash of oil prices, though, didn’t come from 30-to-1 conventional oil wells, for the simple reason that every oil province in North America capable of bringing in that kind of yield was prospected many decades ago and is producing oil at ful tilt right now if it wasn’t drained to the bare rock long ago. What produced the surge this time was a mix of tar sands and hydrofractured shales, which are a very, very long way down the goo curve.

Neither one of them, as it happens, actually yields petroleum. From tar sands, as the name suggests, you get tar, which can be cut with solvents and shipped to special refineries where, if you’re willing to spend the money, you can break them down into the same things you can get much more cheaply from conventional crude oil. From hydrofractured shales, you get mostly very light hydrocarbons, the sort of thing that’s better suited to filling disposable lighters than it is to fueling your car. Both of these still got lumped in with conventional petroleum in the official statistics, which made it much easier for the New York Times and other highbrow propaganda outlets to pretend at the top of their lungs that peak oil doesn’t matter—there’s a rant to this effect somewhere in the Times every couple of months, which may suggest a certain basic insecurity at work, but that’s a theme for another post.

The real difficulty with the goo you get from tar sands and hydrofractured shales is that you have to put a lot more energy into getting each BOE of energy out of the ground and into usable condition than you do with conventional crude oil. The exact figures are a matter of dispute, and factoring in every energy input is a fiendishly difficult process, but it’s certainly much less than 30 to 1—and credible estimates put the net energy of tar sands and hydrofractured shales well down into single digits.

Now ask yourself this: where is the energy that has to be put into the extraction process coming from?

The answer, of course, is that it’s coming out of the same global energy supply to which tar sands and hydrofractured shales are supposedly contributing.

That’s the other half of the picture, as we stumble across the unfamiliar landscape on the far side of peak oil. The jagged landscape of booms and busts will doubtless continue for some time—it would not surprise me at all if the busts kept on coming at something like the six-year interval separating the 2009 and 2015 debacles—and each cycle will hammer the global economy in an assortment of familiar and unfamiliar ways, spreading collateral damage far and wide. Meanwhile the net energy of oil production will slide unsteadily downhill as older resources are exhausted and newer ones, with much steeper energy costs for extraction and refining, have to be brought on line to replace them.

The decline in net energy won’t be visible in the places you’d expect, either. As long as the hard facts of geology make it physically possible to do so, large volumes of “petroleum,” in some sense of that increasingly flexible word, will continue to be produced and consumed. With each year that passes, though, a larger fraction of that output will have to cycle right back into the extraction and refining process, leaving less and less available for all other uses. Thus declining net energy promises to play out over time in the form of creeping dysfunction throughout the economic sphere, in the form of neglected and abandoned infrastructure, failing institutions, a rising tide of permanent joblessness and homelessness, all papered over with an increasingly brittle layer of propaganda spewed out with equal enthusiam from the partisans of every officially acceptable point of view. (If this doesn’t sound familiar to you, dear reader, you need to get out more.)

That’s not going to reverse itself, either, because the resources that would be needed to flood the world with cheap abundant energy again don’t exist any more. We, ahem, burned them all. Again, the Earth is a sphere a little more than 7900 miles across; it never held that much in the way of concentrated energy resources in the first place, and our species squandered everything in our reach in three centuries or so of wretched excess.  The cycles of contraction and dysfunction just outlined are part of the process by which that excess is going away, leaving us with, at most, roughly the same sort of access to energy and its products that our ancestors had before the Industrial Revolution.

We could have made that transition in a controlled and intelligent way, and we didn’t—but that doesn’t excuse us from having to make it anyway. It’s just that we’re being dragged kicking and screaming into the future by forces we chose to ignore but can’t evade. Peak oil is one of those forces; anthropogenic climate change, which has been discussed here extensively already, is another—and it’s another that has been bedeviled by the sort of overly linear thinking on the one hand, and apocalyptic fantasy-spinning on the other, that crippled the peak oil community’s capacity to anticipate the future.

In an upcoming post, I plan on talking about some of the broader lessons to be drawn from that failure—and in the process, I intend to deliver a good hard stomp to one of the habits of thought that did the most to land us in this mess.

Photo credit: By Branork - Own work, CC BY 3.0, $3

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