When in the late 1990s it was recognized that world oil production was likely to start declining early in the twenty-first century, petroleum geologists and other industry observers started talking and writing about the economic damage this event would cause. Serious economic consequences were a virtual certainty because, since the beginning of the industrial age, economic growth had required increasing quantities of fossil fuels.
During most of the twentieth century economic growth increased the demand for oil, which had come to serve as our primary transportation fuel, the source of energy for many production processes, and the raw material for an ever-increasing range of industrial products. Unless satisfactory substitutes could be found quickly, economic growth was likely to stop. And without alternatives, economic decline—if not a collapse—was likely.
This chapter explores the relationship—as it is understood thus far—between the peaking of oil production, which started around 2005, and the current global recession, which officially started in late 2007. In the long run, global warming may turn out to be of more significance than the peaking of fossil-fuel supplies. However, it is clear that the peaking of global oil production has already had economic consequences, which will become increasingly serious as time goes on, and that the global economic recession is due at least partially to the lack of significant growth in world oil supplies since 2005.
Although concerns about the amount of crude oil that can ultimately be produced go back many decades, modern interest in the topic was revived in March 1998 by an article published in Scientific American written by two senior European geologists, Colin Campbell and Jean Laherrère. The article warned that, from the perspective of geology alone, world oil production would likely reach an all-time peak sometime around 2010. Worldwide production of crude oil and various liquid substitutes1 in 1998 was roughly 75 million barrels per day (bpd), and oil was selling for $10 a barrel.
Over the next seven years production grew rapidly, reaching a multi-year plateau of 85 million to 86 million bpd starting in 2005. Prices then started climbing rapidly, peaking at over $130 per barrel for the month of July 2008 (see figure 19.1).
Over those ten years, public and media awareness of the issue grew slowly while organizations,2 books, and Web sites appeared, tracking and discussing the various implications of worldwide oil peaking. The revival of the idea that global oil production would soon peak also brought forth many detractors, some of whom remain highly vocal to this day. The most important doubters were the two major organizations charged with tracking the world’s oil supply and making forecasts as to what was likely to happen in the decades ahead—the International Energy Agency of the Organisation for Economic Co-operation and Development (OECD), based in Paris, and the U.S. Department of Energy’s Energy Information Administration in Washington, D.C.
Until very recently, neither of these agencies had ever examined in depth the question of whether there was going to be enough oil available in the future to satisfy rapidly growing world GDP.3 It was simply assumed, based on general estimates by the U.S. Geological Survey, that there was sufficient oil underground to supply humanity’s needs for the foreseeable future. Therefore, oil-production levels were forecast on the basis that the oil industry would be able to supply however much oil was required by economic growth, with little if any consideration of the geologic, economic, and political constraints on producing ever-greater amounts of oil.
However, the global oil market has changed in very significant ways since 1998. The real price of oil has increased several-fold as demand has continued to increase. Demand has been shifting away from the developed OECD countries and toward the rapidly growing economies of Asia (primarily China and India) as well as the oil-exporting nations that can easily afford to subsidize domestic prices. Finally, world production—which has been growing steadily for nearly 150 years—has flattened out (or, as some say, “plateaued”) in the vicinity of 85 million to 86 million bpd, suggesting to many that all-time peak-oil production has already occurred…
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