Saturday, October 29, 2005

That Pesky Peak Oil Problem


Peak oil is just not going to go away. I was playing with some numbers from the Oil and Gas Journal as my starting point and built up a spreadsheet inspired by another one I'd seen elsewhere lately. I kept things simple and I gave every benefit of the doubt to the cornucopians (people who think oil will always be plentiful for the foreseeable future). I used a depletion rate of 6.9% which is industry average even though most fields are beginning to deplete faster. I used that same depletion rate on new fields, even though new fields seem to deplete closer to 15% annually and last no more than 6-7 years. I even allowed new fields to stay online 15 years instead of 6-7 years and I limited world growth demand to just 2% annually for new oil.

The line going down from 2004 with the blue boxes is annual production. The line going up is the annual demand. The really thorny problem is that it seems that the bulk of existing fields are in decline, not just a few. And as all these old fields go into decline, the industry's promise to bring 3-4 million barrels per day of new production online each year is just not going to cut it. Heck, I even doubled the industry projection to 6 million barrels per day of new production each year and it just delays the decline by about 3 more years tops and we go negative (demand exceeds supply) in 2009 instead of 2006. What people don't realize is that the entire world production today of roughly 84 million barrels will fall to less than 16 million barrels by 2030. This means that to support growth, we not only have to find enough new oil for the growing demand of India and China, but we also have to replace 68 million barrels per day of production by then. This is close to 130 million barrels of all new production when we haven't even reached that in the first 150 years of production. Geometric growth curves are evil things, including when applied to geometrically growing human populations and demand.

Dr. Kenneth Deffeyes is calling peak this year. Ali Morteza Samsam Bakhtiari, senior expert at the National Iranian Oil Company, is calling peak this year. Multiple other geologists are calling peak this year. Who opposes them? Economists, people with no formal training in physics, chemistry, earth sciences, geology, and particularly petroleum geology. The same economists who can't figure out what inflation is going to be next month are telling us that the geologists are wrong, despite those same geologists having been right time and time again, since Dr. M. King Hubbert first made his prediction of an oil peak oil for the US back in the 1950s (which happened on schedule in 1970) and then made his world oil peak prediction in the 1960s for the early 20th century.

Who do I trust? The geologists, of course. What does peak oil mean to people in the first world? Not much at first except rising prices across the board. The poorer nations will be cut off first, by lack of cash to buy oil. It's already happened in places like Zimbabwe, Somalia, Nicaragua, and Tibet. It will happen more. And as the gap between supply and demand grows larger and larger, the price will generally escalate, though swings will occur largely due to irrational human psyches trying to wish it down. Later, peak oil will affect everyone negatively, unless you cut your oil addiction now. If I was independently wealthy, I'd get off the grid, go completely solar power, earth sheltered passive heating and cooling, on my own property at least 2 hours from any major city and in or near a small town. Since I am not, I'll have to cope as I can.

If you want to know how to handle peak oil, talk to your grandparents or great-grandparents if they lived through the depression. Collect their thoughts and ideas now. Learn to grow a garden. Begin walking as much as you can because if things really go south, soon you won't have much choice. And don't bother asking your representatives to bail you out because it's too late. This is going to hurt and it's going to hurt all of us. The best we can do now is grit our teeth and bear it.

Oil is a finite resource. Higher prices can only produce so much oil and eventually it will be all gone. But on the way down to empty on the gas tank we can expect wars over remaining oil, economic stagnation and recession, and perhaps ultimately extreme depression. And the only way out of this is something other than oil. Got seeds and hand garden tools? Maybe you should.

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