Peak Oil

This post could be the most important thing that you have ever read, if you take it seriously.

How many of you have heard of the term “peak oil”? Three or four years ago, probably less than 0.01% of North Americans knew what this phrase referred to. Nowadays, with the price of gasoline and diesel and other fuels skyrocketing, the phrase is entering the mainstream, and probably almost 5% of the population has at least heard some reference to the emerging problems of fossil fuel depletion. If you haven’t, you’d better learn quickly. And as a forewarning, you’re going to be shocked by what you learn.

Basically, the problem is simple to understand if you know anything about basic economics. Fossil fuels, particularly crude oil, have been plentiful in the past hundred years. However, even though humans have known about the existence of crude oil for thousands of years, it has only been since the early 1900's that crude became a mainstream commodity. Many people mark the effective beginning of the petroleum industry as taking place when the Spindletop gusher was discovered in Texas in 1901. After that, it wasn’t too long before oil became a key part of industrial civilization.

Over the years, geologists have been able to find many large deposits of oil. However, the rate of new discoveries has plummeted in recent decades. Basically, geologists found almost all of the notable fields several decades ago, and now, the best we can hope for is rechecking old areas for small pockets that were overlooked. On a global basis, discoveries peaked in the 1960’s. However, the exploration budgets of the big global oil companies have all been slashed in the past decade, because these companies know that there is very little left out there to find. Of course there are some exceptions – some geologists hope that there are still large deposits under the Caspian Sea, under Arctic regions, and in certain deep sea offshore areas. However, most of those areas are extremely tough to drill in (both politically and financially) and are unlikely to add more than a small percentage to remaining global reserves.

At the moment, the world consumes about 85 million barrels of oil per day. This number has been growing for decades (by a few percentage points per year), with the exception of a few blips, such as immediately after the 1974 oil shocks. It’s not surprising that consumption has been growing, because the earth’s population has been growing. True, we have made enormous strides in terms of conservation and efficiency, especially since the early 1970’s, but these “savings” have been offset by increased population growth, and also by the desire of certain second-world economies to “catch up to the west” (especially in countries like China and India, who, not surprisingly, want to emulate the same standards of living as North Americans).

Just as demand grew, the supply of crude was historically able to grow for decades and always exceed supply. However, many of the large “elephant” fields that were discovered in the mid-20th century (Cantarell in Mexico, Ghawar in Saudi Arabia, etc.) have finally started to run out. In fact, four of the five largest oil fields in the world right now are in terminal decline, and their daily output is dropping fast (some on the order of 10% per year or more). Since about 2000, we have only discovered about one new barrel of oil for every four or five barrels that we consume. So basically, although global supplies were increasing for quite a while, we’ve used up quite a fair chunk of available oil over the past century. Since oil is a non-renewable resource, at least in terms of the human time frame, we’re running out.

Now I don’t want to mislead people here. It isn’t exactly accurate to say that we’re “almost out of oil” on planet Earth. In fact, the truth is that we’ve probably used less than a third of the known oil. However, problems do exist in extracting oil. Based on current technology, which has been pretty refined in the past few decades, we can usually only recover about 35% to 55% of oil from any given underground deposit. We’ve managed to increase this recovery rate by a small amount, and in some cases geologists are going back to old “exhausted” fields and are able to extract a bit more oil. However, due to geologic and physical reasons, it is impossible to improve recovery rates by much more than current levels. One method of improving recovery rates used to date is that sometimes petroleum engineers will inject large quantities of water into a well in order to increase the pressure and force more oil out. However, this is a bit of a desperate approach – estimates are that in Saudi Arabia, engineers are injecting over 13 million barrels of seawater per day to force out about 9 million barrels of oil. It won’t be long before some of those fields become useless because they will have such a high water content.

Also, you have to consider the cost of extracting oil. There are two measures of the cost of extraction. If you’re looking at the monetary cost, let’s take an example: let’s say that it costs $150 to extract each barrel of oil from a certain oilfield. At the moment, with crude oil selling for $135 per barrel, it doesn’t make any sense for a company to extract that oil, so it is currently an uneconomical field. However, if oil suddenly jumps to $200 per barrel, that field will become economical again, and engineers will drain it. But ignoring the dollar costs, the key indicator is the “energy cost,” known in the industry as the ROEI, or Return On Energy Invested. It is increasingly taking more and more energy to get at the “harder to extract” oil basins. If you can only recover 0.9 barrels of oil from a particular reservoir for every barrel of oil you use in energy consumption, that basin will never, ever become useful for humans.

So based on these two main considerations, we are running out of “useful” oil. You can describe the situation in many different ways: we’ve “skimmed off the cream of the crop” or we’ve “picked the low-hanging fruit.” But no matter how you put it, we’ve exhausted a sizeable percentage of the easiest oil, and we can never get it back. Due to this, due to the extreme depletion of our existing largest fields, and due to the practical absence of new discoveries, the cumulative effect has been that our global supply of oil appears to have finally peaked in the past year or so. Although petroleum geologists around the world are desperately trying to increase output in every known oil-producing region, it is extremely unlikely that global output will ever rise again above 85 million barrels per day. In fact, because so many oil fields are already going into terminal decline (estimated at 3% or more globally per year), that supply figure is going to drop quickly.

So what I’m saying is that last year (probably) or maybe this year is the last time in human history that global supply of crude oil will be able to fulfill demand. In the next few decades, demand will grow by probably 2% per year, and supply is expected to fall by 3% per year. In other words, the difference between supply and demand is going to result in a shortfall that gets probably four or five percent worse every single year.

A shortfall of 5% doesn’t sound like a big problem. However, consider than during the oil shocks of 1974, a 5% shortfall resulted in gasoline prices going up by 400%, and some industries coming to a standstill. I can think of two analogies: the first is musical chairs. When the music stops, if there are exactly enough chairs, everyone calmly seats themselves. But as soon as there is a shortfall of just one chair, fighting breaks out. Another even better analogy would be the human body. An average person probably contains about 160 pounds of water, since we are mostly made of water. However, a shortfall (dehydration) of just 10 to 15 pounds of water can be life-threatening, and in some cases will kill a person.

Your next thought might be, “So what if gas becomes really expensive? That’s a problem, but not the end of the world.” However, you would be incorrect. In addition to transportation fuels, crude oil is a basic component of just about every part of industrial society. We make medicines, plastics, and thousands of other materials out of crude oil. Crude oil is a key component of global food production, and is a core input for just about every significant industrial activity that exists today.

Our entire culture is screwed. Human civilization is screwed. I know that this sounds extremist, but that is the very opinion of the best paid and most highly respected scientists, geologists, and physicists in the world. The problem is that very few people WANT to believe this warning, because it means a total re-evaluation of the near-term future of humanity. Nobody wants to think that ten years from now, our world will probably be embroiled in untold economical and physical resource wars between nations and regions for access to energy and food supplies. Our best option is to hope that these are mostly fought with economic means rather than conventional and nuclear forces, but regardless, the end result will be the same.

You may think that I’m crazy, and that this can’t happen. However, look up the history of dozens of major historical empires and civilizations that have gone through similar collapses in the past few thousand years. The American Empire is one that is currently in steep decline. It’s hard to see that at the present, “from the inside,” but it will become painfully obvious in a few more decades. A complete collapse of the American dollar and financial system, which could make the Great Depression seem like a frat party, is probably only a few years away. The only difference between Fortress America and past empires is that our collapse will be based upon a sudden shortage of fossil fuels, rather than other causes. It is a sad but unfortunate fact that future historians will look back on the “industrial age” as being a relatively brief blip in the history of humanity, of maybe two centuries in duration. Our global population is going to collapse massively in the next century. Humans must evolve into a much less energy-dependent society in order to survive in the long term.

When I first started learning about all of this, several years ago, I was a bit apprehensive about our future. However, I’ve become quite reconciled to the possible ramifications of energy shortages in the next decade. I’ve studied the implications of Peak Oil in a lot of detail over the past several years, and it no longer worries me. I have a kind of detached indifference when I look at signs everywhere that Peak Oil has finally hit us, such as rapidly rising fuel prices, rising food prices, the beginnings of “mainstream consciousness” when it comes to energy issues, and so on. I know that my lifestyle even ten years from now will be radically different than it is at the present, but I’m not worried. Electricity will be available only sporadically, unless we make enormous progress with renewables such as wind power (and it may be too late). The internet will no longer be maintainable, because of the electrical and infrastructure costs. Conventional food sources will have to become extremely localized, and our monetary system may be replaced in large part by trade or barter. However, that would be a type of lifestyle that I could easily adapt to, unlike most city folk. I’ve learned a few useful skills in my career as a tree planter, and I wouldn’t be too upset to live a rural subsistence existence with no money or fancy possessions. Unlike a lot of modern society, I could almost enjoy becoming a farmer, scratching out a subsistence lifestyle without luxuries or many conventional amenities. Well, maybe I wouldn't enjoy it, but I could do it if I had to to. Could you?

Anyway, that is enough for now. I’d like to keep my blog more light-hearted, but I can’t help but let some people know more about Peak Oil, and I know that I’ll have follow-up posts in future months. I’ll probably also do some book reviews of some of the better books that I’ve read on the subject.

I highly recommend that you take the time to educate yourself on this topic – it could be the most important thing that you have ever studied. A very large number of university students read my posts because of my Facebook feed – if you know me, you may think that I’ve totally lost what little was left of my sanity, but please trust me - it is definitely worth your time to learn more about Peak Oil. It will be more useful to you than any university course that you ever take, and it will probably change your life. You can start by reading through a couple of websites about Peak Oil, such as www.lifeaftertheoilcrash.net, which is maintained by Matt Savinar, or www.dieoff.org, by Jay Hanson. Those sites should work wonders in completely depressing you about the possible near-term future of mankind. Then, to snap you out of depression, you can try going to your local library or to Amazon and reading some of the mainstream analyses of our global energy problem, such as “The Party’s Over,” “Hubbert’s Peak”, “High Noon For Natural Gas”, and a slew of other best-sellers.

Here’s one final staggering statistic to think about before I wrap up this post, which surprisingly, I haven't seen used before to make people realize how severe the situation is. According to the Oil & Gas Journal, the world had about 1293 billion barrels of oil in total in reserve in 2006. This number is disputed, and some other authorities think the true number is actually a bit lower than that. But let’s assume that 1293 billion barrels is the correct number. Seems like quite a bit, doesn’t it? We shouldn’t really have to worry for a while yet, should we? Well, with 7.5 billion people on Earth, that works out to about 172 barrels per person left on our planet, period. And a sizeable portion of that amount may never be able to be recovered due to the physical and geological challenges.

Right now in my summer job, my truck is consuming over a barrel of oil PER DAY based on the amount of diesel I use. I run a silviculture camp of tree planters, so the job is about as “green” or eco-friendly as it gets (my camp will replant about five million trees in Western Canada in the next three month). However, despite how “good for the environment” this job is, the fact remains that I am going to use “my share” of the Earth’s remaining oil in less than six months based on my driving use alone, and this doesn’t even take into account the hundreds of other barrels of oil that my personal ecological footprint will consume in other ways. If every other person on the planet consumed fossil fuels at the rate that I do (and I’m drastically trying to reduce my consumption), then the world would be out of oil in a couple months, not decades or years.

I have wanted to put up this post for about three years, but until now, I figured that everyone would think I was crazy, and only one or two people would read it and take it seriously. Now that gas prices are going up quickly, I think quite a few more people will actually study this information and start trying to learn more. I hope this is the case - sticking your head in the sand is not going to make the problem go away.

Three years ago, hardly anyone but a tiny minority of financial experts (and myself) ever believed that oil could cost more than $60 per barrel. Less than a week ago, it set a record at $135 per barrel, but believe me, that’s just the beginning. Global oil supplies will become increasingly scarce in the very near future. A famous Saudi proverb goes, “My grandfather rode a camel. My father rode in a car. I ride in jet planes. And my sons will ride camels.”