Another look at peak oil

Cheryl Rofer of Whirled View has a great post on the concept of peak oil. I really like this essay because it makes the distinction between peak oil believers and peak oil skeptics so clear.

Cheryl writes:

Peak oil refers to the idea that, because the oil in the earth is finite, its use will follow a bell-shaped curve. For oil, that curve is called the Hubbert Curve, after King Hubbert, who was the first to argue this case in this way. Peak oil advocates say that we are now at or near that peak.

The issue is not whether oil production will peak, but when. That much is a logical certainty, given that the earth's petroleum resources are finite. Human oil production began at zero, and someday it must be so again. Some chunk time of time will turn out to have earth's peak oil production era. The key question is whether we are living in that epoch. If we are, we'll be totally fucked shortly...because after the peak comes the drop.

Supply and demand dictate that reduced output will drive up prices. When that happensd, those who can't pay won't be able to run their economies. At that point, chaos will ensue. Optimists hope that the peak is still a ways off, or that we'll plateau for a long time before the drop. If they're right, we might have enough time to avert the crisis by developing alternative energy sources.

As Cheryl explains, peak oil economists are trying to use today's oil prices to suggest how close we are to the peak. Amongst other things, the price of oil reflects people's expectations about how much of it is left. Cheryl's essay is about this "amongst other things" qualifier. She is asking what factors other than absolute global petroleum depletion might be contributing to the recent spike in oil prices.

I agree with Cheryl that the rational course of action is to act as if we were at the peak. The implication of the peak oil hypothesis is the same regardless of whether we're presently at the peak, or not. The economics and the geology are uncertain, but the logic is clear. Human civilization as we know it depends upon fossil fuels. But only so much biomass got fossilized. We don't know exactly how much, and we don't know how ingenious we might become at sucking the dregs. Nevertheless, the fact remains that our demand is increasing dramatically and the supply is finite. We know peak oil will happen, and we know the consequences will be devastating. The only sane response is to start investing in alternative energy sources now.

Comments

[jimBOB]

Acting as if the peak were imminent is certainly the prudent thing to do. Of course, it'd also be prudent not to deliberately destroy the government's financial situation, especially with the boomers retirement just around the corner. It'd be prudent not to go to war for false reasons and no backup plan in case things don't go as we hope. It'd be prudent for the President not to ignore large amounts of intelligence chatter about an imminent terror attack in the U.S. in the summer of 2001 and instead go on an extended vacation. Etc.

The bottom line is that prudence has precious little to do with how things actually work right now. A sufficient number of voters here in the U.S. seem blithely unaware of the risks facing the country, or are incapable of processing information about those risks in an intelligent way.

If peak oil comes sooner rather than later, lots of people are going to get some hard lessons in reality. "Experience keeps a dear school, but fools will learn in no other."

[Tom]

Your claim that we will shortly be "totally fucked" is misguided (as it relates to oil, anyway; as it relates to other issues, who knows?). The bell curve is, of course, a symmetrical object. That means that if we are at peak oil use now, it will take at least as much time to consume the remainder of our resources as it took for us to arrive at the peak from zero use--i.e., about 150 years. That can be considered "shortly" relative to, say, the lifespan of a red giant, but cannot be so considered relative to the timescale of technological advancement. When oil prices are sufficiently driven up as a result of the supply drop, it won't be fast enough for economies to be ruined or the resulting chaos you predict. It will, however, be slow enough for some motivated business men and women and their engineer buddies to find a way to get rich via the discovery of some alternative energy source, and save our oil-loving asses.

One of your final claims I can agree with: the logical thing to do is act as if we are at peak oil. As for the rest, don't lose any sleep.

[CKR]

That means that if we are at peak oil use now, it will take at least as much time to consume the remainder of our resources as it took for us to arrive at the peak from zero use--i.e., about 150 years.

Only if our rate of use is the same as it has been for the past 150 years, Tom. But it's not. Since we discovered petroleum, we've invented the automobile, and the appetites of China and India for oil are growing rapidly. So the rate of use is increasing, and that area under the curve stays the same. It won't be 150 years, but much less. Again, we don't know the exact numbers because we don't know what the total amount of oil is.

[Matt Austern]

First, "bell curve" is a bit inaccurate. Pet peeve alert: a bell curve is a specific curve, also known as a normal distribution or a gaussian. It has lots of very specific mathematical properties, including symmetry, a long tail, a finite value for every part of the function, etc. Not every curve with a peak and two tails is a gaussian!

Second, regardless of the shape of the curve: just because the right-hand part of the curve shows a gradual decline and not a cliff, this is not at all inconsistent with the "totally fucked" forecast. Remember: the right-hand side of the curve, whenever it occurs, translates into continually rising prices, people switching from oil to something else or just doing without, falling production even when the increased price per barrel is giving producers every incentive to produce as much as possible. In real-world terms, the nice-looking curve translates into disruption and pain.

And the pain starts before the peak. The peak is when the first derivative reaches zero, but the pain, the sign that there isn't as much production as the economy really needs, is when the first derivative starts dropping. The first sign of a problem is when the second derivative goes to zero.

I once went to a talk on this by the late Hans Bethe. He showed a few resource production curves like this, and one of these was the amount of gold produced by Spanish colonies in the New World. He pointed to a specific spot on the curve: a little before the peak, but where the production had clearly slowed. That's where the Spanish economy collapsed.

[josh]

We could help matters by just denying oil (and oil-derived products like polymers) to flat-earthers. After all, if the earth was created 10,000 years ago, biomass decay wouldn't have produced any oil yet. Ergo, oil is a trick by the devil to test their faith.

[Andy]

Wouldn't the pain start when the first derivative of the production becomes less than the first derivative of use, regardless of where the peak is?

[Tom]

CKR: a good point about rate of use increasing. What this does is speed up the occurance of peak use, the subsequent driving up of prices and demand for an alternative source. Note that the search for alternative energy sources are currently underway, and the most important claim in this post, to my mind, is that we should be investing in that search.

Matt, I think that you are correct, but not making a relevant point. If the economy continues to depend on oil, the trouble you and Lindsay predict is sure to pass. It just seems that the rate of development will outstrip the impending economic catastrophe, and America and other countries will eventually rely on other (hopefully more abundant) fuels, not only practically, but economically. Again, that is only my intuition, but if we can project oil consumption from past rates, why can't we predict technological advancement from past rates, first derivatives that are surely steeper than the former? I don't know for a fact that advancement will be faster, but the nice thing about situations like this, if there can be such things, is that the competition to develop the relevant technology is stoked.

And with all due respect to Mr. Bethe--which is a lot--the comparison to the Spanish economy is a spuriuos one. While it's true that Spain's mining of precious metals slowed in the 17th century, the ultimate reason for the financial collapse of Madrid was that nearly all industry at the time was in the hands of foreign owners, and imports basically doubled exports. It wasn't that gold was a resource declining in availability, but that any gold brought in on ships from the Americas was immediately owed to foreign creditors that lead to the collapse of Spain's economy, and the eventual marginalization of the Hapsburgs.

[Mithras]

I confess I haven't been reading much about peak oil, although I see references to it like this one fairly regularly. My question is how to evaluate these statements: "Supply and demand dictate that reduced output will drive up prices. When that happens, those who can't pay won't be able to run their economies. At that point, chaos will ensue."

When prices go up for an input, consumption of the input declines, but also people resort to substitutes. The higher cost of a good means that alternatives look more attractive. Money will be spent on researching alternatives to the use of the expensive input, especially if it is clear that the input will only become more and more expensive. I am not arguing that creating alternatives will be easy or will solve the problem without pain. I actually have no idea whether alternatives are feasible. But in the discussions of peak oil that I have seen, alternatives are not even discussed. It's "we'll hit peak oil, then the world ends."

[Eric]

Forgive the new comment (referred from another blog). Forget about derivatives--isn't it obvious to everyone that oil prices continue to rise? That global warming is getting worse by the year? We should invest in a program that shifts drivers to hybrids in the near term and something else (fuel cell, etc) in the long-term--and the cars can't look like space vehicles. They've gotta be stylish and fun to drive and people will switch--and they won't need tax incentives to do it. Because we'll never know when the peak will be, the whole concept gives those on other side the illusion that we don't have to worry about this problem right now--but we can and we must.

[MFB]

Majikthise, wouldn't the proper time to have begun investing in alternative energy sources have been thirty or forty years ago? I mean, it would be a good idea to start now, but, let's face it, we can't be sure that we'll get all the bugs out of solar energy (as I understand it, making solar cells generates tremendous chemical pollution) before the bottom falls out from under our culture.

So, in a way, you are underestimating the problem. More particularly, also, this strongly suggests that there will be no money going into solar energy (which, to my mind, is the most plausible alternative to fossil fuels -- fission seems much less promising than it did in 1960, and fusion is batshit crazy).

[bunny]

I believe your statement about pricing of oil is incorrect. The price of oil has very little to do with how much is left, and almost everything to do with how much can be pumped out of the ground right now. One of the reasons prices have risen is that nearly every oil producer is already pumping as fast as they can. Even if there was an infinite supply of oil, prices would continue to rise as demand outstrips production.

And yes, I've actually heard wingnuts argue that oil is not finite, and is simply replaced as fast as it's pumped. This is obviously not a rational view, but it does exist.

[Njorl]

'When prices go up for an input, consumption of the input declines, but also people resort to substitutes... alternatives are not even discussed. It's "we'll hit peak oil, then the world ends." '

True, substitutes will be found. The problem is the costs. We are talking about retooling an entire world's energy usage system. This means converting, or building new power-plants and factories, redisigning automobiles, retooling the factories that build them, remodelling home-heating systems. These costs will hit a western world saddled with consumer debt, and an Eastern world that has just undergone a massive capitalization to use fuels it can't afford to buy anymore.

Another nasty aspect is that you can't plan ahead for this in a free market. If you convert your powerplant ahead of time, you are essentially depressing the cost of oil for your competitor. He will produce cheap power, and drive you out of business. Only when the crisis is imminent can you sell energy futures for a high enough price to warrant recapitalization to a new energy source. I do not have faith that the free market can react to this sufficiently well to stave off catastrophe.

[cervantes]

Actually, it really doesn't matter whether production has peaked in absolute terms. What matters is whether production can satisfy the demand. Even production still rises, the price of petroleum can still head inexorably upward. The industrial economies had most petroleum production to themselves in the 20th Century, now the Chinese and Indians are joining them. Whether production has peaked or whether growth in output is just limited is largely beside the point. Either way we have big problems.

[Will]

This is a thought stolen from a Peak Oil blog which I sometimes like. It relates to this discussion, specifically about the development of new technologies and energy sources:

"You can't make a baby in one month by getting 9 women pregnant."

[Will]

The peak oil blog I "sometimes like" turns out to be one linked to in the original post as "peak oil believers".

note to self: click links, then post.

[CKR]

Great discussion!

I tried to keep my post simple, so I left some things out and wasn't entirely clear on others.

I think the important discussion lies elsewhere than in the mathematics. As I recall, the peak oilers do indeed argue that the distribution is indeed a bell curve. And yes, I know what that means.

Because we don't know the exact shape of the curve, however, and because the political situation is as important as the economic, I don't think it's useful to try to pin down collapses to particular relationships between only two variables or their derivatives.

I agree with Tom, that the the important issue is that the problem is clearly coming. Unfortunately, the problem has seemed to be close before, and it turned out not to be, as I noted that false peak in the 1970s.

Predicting technological advances is very, very difficult. I got involved with an attempt like that some time ago and wound up figuring out some interesting things about the 12th century and the origin of the Arthur stories, but it didn't help the strategic planning much. Basically, technological advances aren't a physical resource, like oil in the ground.

Mithras makes a good point. Substitution will happen, and there isn't a cliff to fall off, although some peak oilers make it sound that way. Things will probably happen more gradually, but dumb moves on the part of governments can cause collapses.

MFB, some of the work on alternative energy did start thirty or forty years ago. We've had oil crises in the late 1940s, to which the response was "drain America first;" and then again in the 1970s, when OPEC decided to flex its muscle. In the 1970s, there was lots of government funding for alternative energy.

Alternative energy is a difficult problem, though. You're effectively trying to pick up scattered bits of sun and wind and put them together to make a power plant, where fossil fuels and nuclear power provide lots of concentrated energy. More technically, thermodynamics says scattered sources will always be less effective than concentrated ones.

Government funding responds to the crisis of the year, though. Some commercial funding has continued, but Njorl points out the problem there.

The argument that oil is not finite is intriguing. It's possible that some oil is being produced by the processes that produced all the other oil, and it's possible that some of those processes don't involve dead dinosaurs or vegetation. Some of my scientific work has been related to this, so it would be easy for me to go into horrendous detail. I'll just say that I think that even if this happens, the amount of oil it would provide is tiny, tiny compared to what we're using.

[mudkitty]

We're dooooooomed!

[shawn]

Tom, I would agree that saying the Spanish economy collapsed because of one the slowing of precious metal mining oversimplifies things, but it seems that all the other factors (foreign ownership, lack of domestic production, too much import compared to export and a staggering debt) are all pretty much the same factors that face the U.S. economy right now. They also had some serious foreign entanglements at the time and were supporting a pretty large military effort... sort of like us.

Since I'm an optimist... I'll just assume that if we follow the same road to ruin that Spanish blazed so spectacularly before us, in about 300 years the U.S. will have some sweet travel draws, some great clubs and
a country full of beautiful women. That's assuming that history repeats itself here as it did there...

[Julian Elson]

There are several questions here that occur to me:

1) Which uses of petroleum are for energy, and which are for other things, such as plastics, pharmaceuticals, fertilizers, and cosmetics?

2) For petroleum generally, what are the costs of the close substitutes (liquefied coal, biodiesel, hot used cooking grease, pig manure-based oil, shale-based oil)?

3) For energy, what are the costs of the remote substitutes for petroleum (coal, natural gas, nuclear, solar, wind, geothermal)?

4) What viable remote substitues are there for the non-energy uses of petroleum?

If the answer to #2 is "they don't cost very much," then we don't really even have to worry much about #3 or #4. If #2 is "they're expensive," the period in which we're relying on soybean oil (the cheapest I found it at the grocery store was $5.29 a gallon, IIRC) and the like to fill the gap between energy demand and declining petroleum production plus our inchoate alternative energy industries will be rough. Not unmanageable, but rough nonetheless.

[Tom]

Shawn, here's hoping!

[CKR]

A few responses to Julian Elson's questions. I'm going to respond qualitatively rather than quantitatively because I think the qualitative issues are more important.

1. About 90% of petroleum goes for energy and 10% for other uses.

2. The costs are not the whole story for the "close" substitutes. All the biofuel alternatives require both fertilizer (manufactured with petroleum) and machine (fueled by petroleum) inputs. The issue is whether the production of such fuels exceeds the petroleum-based inputs, which it doesn't so far. There are some efforts to produce liquid fuels from biowastes (like bagasse from sugar cane), which might give a better balance. Another possibility is the development of different fertilizer syntheses that could be run by nuclear power, along with hydrogen-fueled farm vehicles, the hydrogen derived from nuclear power. This would not be strictly efficient, since much energy would be lost in the process, but it would be a way to provide the liquid fuels needed in transportation. Another problem is that there just isn't enough of them. Water is the only thing used in greater quantities than petroleum. Well, maybe air too.

3. Generally, the "remote" alternatives are more expensive.

I've put "close" and "remote" in quotes because I would reverse the application of these adjectives. I think Julian sees "close" as meaning similar in being able to be used as transportation fuels, but his "remote" sources are actually closer to substitution for petroleum in fixed power plants.

4. It's even harder to substitute other sources for petroleum in its non-fuel uses. The argument has been made that we need to move away from just burning it because we need it for other things. To some extent any carbon source, like coal, oil shale, garbage, pig manure, bagasse, can be used, but all of them require much more processing/energy/costs than petroleum.

As petroleum becomes more expensive, all these alternatives will be explored, and substitutions will take place.

However, the 30 April Economist notes that the Saudis and other oil producers are more worried about a price collapse than they are about running out. They're addressing production limitations by increasing their infrastructure. So they're not acting as if they believe we're at the peak or that the peak will come soon.

[Julian Elson]

Thank you, CKR.