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Wednesday, November 14, 2007


peak energy consequences

if the concepts of peak oil are truly being proved out today, it is fair to ask what the fallout is likely to be. i've just begin to educate myself in this direction, and already i feel that (unsurprisingly) little if anything is certain.

a two-part assessment from the oil drum -- part 1 and part 2 -- speculates that the global peak in oil and natural gas production will, by 2050, mean a ~30% contraction in available energy supplies on the back of an 80% collapse in the energy production of those two resources.

the decline in overall energy is predicated, however, on suppression of the use of coal for climatological reasons, and assumes no technological redress such as carbon sequestration. as such, it's more than fair to wonder if the western world would not find ways to attack the problem in the face of a 30% energy output decline and corresponding gdp collapse.

but the discussion has interesting consequences anyway. first is the concept of the net oil export problem -- which is to say that, as net exporters of oil grow their domestic economies and become greater consumers, while also reaching production peaks and falling into production decline, they have significantly less oil to export to nations (like the united states) which rely heavily on oil imports. as the linked presentation-sans-narrative demonstrates, the point at which the major oil exporters become net oil importers is as soon as 2025.

but that of course would be the point at which net oil exporters start to see their energy supply crowded. net importers will feel the pinch much sooner.

regarding just the import needs of the united states, the supply of oil available for importation on the international market may well fall to a level beneath projected american oil demand by 2011 -- and beneath even current levels of american oil consumption by 2015. that is, the net oil export problem is not decades away but a handful of years -- if indeed it isn't already touching us in the form of much higher oil prices and the apparent inability of swing producers to increase production in the face of it.

when cast on this timeframe, it becomes yet clearer why the united states invaded iraq -- and why we will not leave. it simply isn't sufficient to have access to international oil markets, as they are likely to be insufficient in the near future to underpin even economic stagnation in the united states. one must have political control, and the will to extract oil from a place like iraq while ensuring that it does not consume the oil it produces. the united states acts in this way as a kind of vampire, retarding the development of iraq to facilitate its own ends.

and of course there is no guarantee of success in iraq -- either in establishing working conditions that would allow direct oil production transfers to the united states in any quantity, or of making the further finds in unexplored iraq that will be so necessary to pushing peak oil out on the timescale meaningfully.

however, one also has to make room for the countervailing view. one element of it is perspective:

Daniel Yergin, chairman of CERA, noted that this is the fifth time the world is said to be running out of oil. "Each time—whether it was the 'gasoline famine' at the end of World War I or the 'permanent shortage' of the 1970s—technology and the opening of new frontier areas has banished the specter of decline," asserted Yergin. "There's no reason to think technology is finished this time."

second, there is the argument that prices are high because of inelastic supply, caused by underinvestment in production capacity in recent years (when the price of oil was much lower), as well as the growth of demand from china and india. ronald bailey, as befits an inveterate anarchist and probably correctly, blames national oil companies for this underinvestment -- but the salient point is that the reserves exist even though they are not being tapped.

please note that this second argument is undermined by the first. yergin is tacitly admitting that exploiting known reserves may not be enough under current technology, and implying that innovation is needed. it may well be forthcoming, but it's also important to note that there has not been a major oilfield discovery in 40 years. moreover, 60% of the world's oil production comes from 1% of its oil fields. when those huge fields go into decline, oil production will probably slow. and that is exactly what is being assessed for fields like mexico's cantarell and saudi arabia's ghawar.

the primary disagreement is not on methodology, in the end, but on the assessment of known reserves. those who believe the government of saudi arabia is exaggerating much as kuwait admitted to doing think peak oil is now; those who do not thing peak oil is some decades off.

UPDATE: more from john mauldin.

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