Wednesday, April 06, 2005

Peak Oil Back In The News

(Warning: Long Post Ahead!)

James Howard Kunstler has a piece in this month's Rolling Stone on the impending Peak Oil. He also has an article in Backhome Magazine, which Mahigan at True North has quoted extensively from and added on to here (or you can download the PDF here.) It's good to see Peak Oil continue percolating in to the public consciousness (National Geographc did an article last summer, and I've talked about the all-powerful West Wing-Alias axis before. However, I have to take issue with some of the doom and gloom stuff that Kunstler and Mahigan engage in.

Preface: Regulars will know that I don't deny the seriousness of Hubbert's Peak for a moment. So this should not be read as me trying to "shoot down" Mahigan in any way. That said, I have a general disagreement with the idea that Kunstler advocates - we're facing some "end time" of this part of history. The disagreement can be summed up in three rather long points.

First, we still don't have a good idea when the Peak will arrive. I'm of the view that we're pretty close, but I'm not a geologist so my opinion is pretty meaningless. We should remember that, aside from a small group of believers, there is no consensus on Peak Oil - men like Simmons, Deffeyes, Laherriere are all smart men (and I'm sure they're excellent geologists) but they are a small group of the "near Peak" school. Others (like the US Department of Energy) believe the Peak may come as late as the 2020s. I've personally written before about why we shouldn't necessarily trust the DOE's estimates, but we can't really ignore them either. I know this sounds suspiciously Bush-like - questioning the science and all - but I also believe (and I'd like to stress that word, believe) that we are near or at the peak, and we should be doing everything we can to get ourselves off oil. I, Kunstler, and (I believe) Mahigan are still in the minority.

The second problem with the "we're doomed!" scenarios is that they overestimate the severity of the decline that follows the peak. While the US's oil production began declining after 1970, it hit another, albeit smaller peak in 1986 after the boom in secondary exploration (in the wake of the Iranian oil shock.) So the peak is not followed by an immediate decline. Rather, we get peak production, a long period of more or less flat production, then a decline (which can be steep or shallow, depending.) According to this BP presentation, US oil production is declining at about 2-3% per annum - this after being in decline for 30 years. Given that, in the period of 1973-75, Japan eliminated almost half of it's oil use, there's no reason to think that Peak Oil will draw down "our" oil supplies faster than we in the west can save them.

Third - and this is the most important point - authors like Kunstler, for whatever reason, paint the situation as hopeless. (I should say that Mahigan does not engage in this kind of thinking.) But even leaving aside possible yet-to-be-invented technical solutions, there are a number of extant possibilties for rapid oil and natural gas savings. Free mass transit (something now being advocated by the IEA) in combination with, say, a steep tax on downtown parking spaces, could quickly shift people from cars to buses and trains. As the price of diesel rises, moving our shipping from trucks to trains could garner an eightfold increase in fuel efficiency (and probably lower labor costs.) Kunstler says that there's no possibiltiy of renewables meeting our electrical demand, and here I think he's just wrong - and this is an odd thing for an environmentalist to say, isn't it? Oil makes up almost none of our electrical demand. Yes, natural gas makes up a lot of our electrical generation - but only in peak times. Peak electrical demand is something which solar is perfectly suited to replace, and will be rapidly coming down in price in the next few years. The vast majority of our baseload power is delivered by hydro, coal, or nuclear. None of these sources is expected to Peak before the next century (though hydro could be harmed by warmer weather due to climate change.) An important point to remember is that the countries which use the most oil are by definition the wealthiest, and therefore the one best prepared to make a transition to a post-oil economy.

Some points of agreement with Kunstler: Food production will be an immense challenge for the future, for a number of reasons. Overall global food production is already declining due to a number of factors (suburban sprawl in the west, the brith of large modern cities in China, "soil shock" from industrial production, etc) and the population is still growing. That said, there are solutions to these problems as well - organic farming is now regularly yielding 80-90% of conventional methods. Whether this can be applied generally I don't know, but I wouldn't bet against it. Kunstler also says that the automobile will be a thing of the past, and I'd agree, if all we're doing is talking about the gasoline-fired internal combustion engine variety. However, as I've written before, there are a number of contenders to replace that dinosaur (not just the as-yet mythical fuel cell car.) Finally, international shipping probably will decline post-Peak, but will likely be replaced by large companies rebuilding their national supply chains (something that was the norm before the 1980s, we should remember.)

None of the above should be construed to mean that the Peak isn't coming, or that we shouldn't prepare. However, I would argue that, for the near term, oil shortages will be driven by high demand and not shrinking supply. India and China continue to subsidize their oil consumption (by refusing to allow state oil companies to pass their price hikes on to customers,) meaning we are likely to see high demand for the forseeable future. But we aren't facing the end of capitalism as we know it (unfortunately) nor are we facing the end of the world. Kunstler dramatically calls it the Long Emergency. I'd call it the Long Test. Frankly, if we it fail then we deserve what we get.


Anonymous said...

(cross posted from Ezra Klein's blog)

There's an interesting article on MSN's moneycentral site Can the U.S. Stop Using Oil by 2050?.

The article references a book ("Winning the Oil Endgame") by Amory Lovins from the Rocky Mountain Institute. (Amazingly, funded by DoD! - does Rumsfeld know?).

An idle dream, you say?

Not hardly. The book is supported with a massive "Technical Annex," a collection of studies and spreadsheets that totals a massive 15 megabytes, much of it in compressed ZIP format, and all available as a free download. This is no pipe dream.

BTW: this the top-referenced article on the heavily-visited MSN Moneycentral site this week.

Anonymous said...

You are correct in saying that oil production does not go immediately into decline, it instead flattens out for a period. And that's a huge problem in itself. The bell curve rises steeply, flattens out, falls steeply. Demand goes in a more or straight line. The problem here is not necessarily when oil production declines, but when it ceases to meet demand. When demand continues to increase, but supply remains flat, that IS the crisis. Later, when supply decreases as well, that's when the shit really hits the fan.

I'm really, really curious to see the information that says Japan reduced its oil use in half. Are you sure they're not saying that the rate of increase in oil consumption was reduced in half? Because that's more or less what the U.S. did.

Anonymous said...

What I'm counting on is that the oil supply will dwindle slowly enough that we'll be able to adjust a little bit at a time. There are lots of supplies like the tar sands in Canada that are just inconvenient enough to access that we'll keep our mitts off it until we really need that oil. Hopefully, instead of running out of oil all at once, we will have a nice "ramp" of slow price increase as supply decrease.

We throw so much energy away now. From waste vegetable oil to corn stalks to all the solar energy we're not harvesting. No one alternative source is going to be the solution, but they're all pieces of the puzzle.

(And I hope it doesn't come to this, but nuclear energy is always on the table when push comes to shove.)

Battlepanda said...

The demand curve is more flexible than you think in the longer run. Look at the cars they ride in Europe and Japan -- they're tiny. Big increases in price will change consumer behavior.

We're burning up all this oil now because it's dirt cheap. We might complain about the price at the pumps, but in real terms (adjusted for inflation) oil is cheaper now than it was in the 50s.

Anonymous said...

Nuclear energy is fine, but at the current rate of consumption our supply of uranium is estimated to last 40 years, and it would fewer if we made it a primary source.

Yes, the demand curve is quite flexible in the long run. The crises in 1973 and 1979 greatly reduced the rate of increase in consumption by encouraging fuel efficiency and not buying as many gas-guzzling Cadilacs. Indeed, many experts believe we would have hit the peak in the '90s were it not for these incidents.

In the long run, yes, of course, consumers will react significantly to higher prices. All goods are elastic in the long run. But in the short run, oil is one of the most inelastic goods available. In 1973 OPEC reduced the world supply by only 5%, which created a 400% increase in world price. It took several years for consumers to adapt as they did, and the opening of new fields in the North Sea and elsewhere helped to buffer it.

So, yes, when prices increasing dramatically, people will begin to make long-term lifestyle decisions that will reduce their oil consumption, like not living in the suburbs, buying smaller and more efficient cars, buying solar panels, etc. But these decisions are major ones that occur over several years. People won't sell their houses in the suburbs or their SUVs right away, it takes time. Meanwhile, you're in a crisis...

One other phenomenon that will contribute enormously to prices is speculation. The same phenomenon that is occurring right now, where people speculate and buy lots of housing with the expectation that prices will increase. The increased demand caused by this speculation then causes the price increases they expected. Eventually, the bubble bursts and prices fall again, but it takes a long time.

This is what happened with oil in 1973. It will happen again when we hit the peak, but likely on a greater scale. Prices might not fall down for a much greater time, because there would be no North Sea to go to, and people would realize it.

You are mistaken, oil is not cheaper now than it was in the '50s even in real terms. It is cheaper now than it was in the '70s, when the crises hit, but not the '50s.

Anonymous said...

The key to this thing will be how gradually the peak approaches us. If prices increase incrementally, it will give people time to adapt and the blow will be softened. If it is abrupt, we will see chaos.

This is why the current oil spikes are encouraging. These spikes are NOT being caused by peak oil, that is a common misunderstanding. They are being caused by political events, especially expectations that Yukos will go bankrupt (largest oil supplier in Russia) and tension in Venezuela, Iran, and Iraq that could disrupt supply. We have an estimated 30 cubic miles of oil in proven discoveries, enough to last at least a decade. The earliest estimate I've seen of when the peak will hit from a reliable source is 2017.

This increase in price will push that year back quite a bit, just as the crises in 1973 and 1979 pushed it back.

These surges need to be viewed a good thing, a tremendously good thing. They will keep our attention on the issue, encourage us to find more solutions, and adapt our lifestyles.

I think the very best thing we could do right now is to dramatically increase our gas taxes, say to over a dollar/gallon. This would decrease consumption, and we could use the money to fund more alternative energy research (and implementation, too!) and public transportation. We should NOT use the new income to fund even more highways, that's just god-awfully stupid. Building more highways just encourages more use of those highways, it never reduces congestion. People will be encouraged to drive more places, buy more cars, live further from where they work and and go to school, etc. This is the reason that Dallas and Houston, with the most extensive highway systems in the country, are also among the most congested cities in the country.

We could also implement more toll roads, higher sales taxes on automobiles (and exclude hybrids/energy cars), higher parking fees, etc.

We could also work to discourage suburbs, one of the greatest villains. For instance, the tax deductions given for interest paid on home mortgages has greatly encouraged people to build their own homes in the suburbs. Removing the exemption would encourage people to live in apartments in cities, which is more energy-efficient.