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The Influence of "Peak Oil"
15 Aug, 2009 01:49 pm
An article in the Washington Post this weekend, together with a must-read interview in The Independent, a paper I used to read regularly when I lived in London, reminded me of an observation I made several years ago concerning the similarities between Peak Oil and Y2K. Having spent a fair amount of time in my former corporate role planning for the serious outcomes the latter might have produced, I don't intend this as a slam on the former. Without rehashing the technical arguments behind either phenomenon, it's worth spending a few minutes thinking about the consequences of a growing belief that we might be only a few years away from the end of oil, as we know it. Whatever one's take on the validity of the Peak Oil argument, it has already evoked noteworthy consequences, both positive and negative.
On the plus side, our reactions needn't go to the extent of the author of a Washington Post piece, searching for self-sufficiency on a small farm in New Mexico, to have a beneficial impact on consumption patterns. Our best chance of avoiding the apocalyptic outcomes that Mr. Fine fears is to live our lives on the assumption that the days of cheap oil are indeed past, and that it will be more expensive in the future. From initial reports of the transactions involved in the Cash for Clunkers program, many people already sense this, despite gasoline prices that remain one-third below where they were at this time last year. And while I certainly don't advocate survivalism as an indicated strategy for individuals, everyone who chooses to downshift in this way stretches out the supplies available for the rest of us, making the transition to more sustainable energy sources more manageable. Merely being prepared mentally for another oil crisis might reduce the likelihood of counterproductive behavior, such as hoarding, should we find ourselves in one.
Unfortunately, these psychological effects also point to the main downside of a widespread belief in imminent Peak Oil. While I remain unconvinced of the role of speculation in last year's spike in physical oil prices, to whatever extent the s-word was driving prices on the oil futures exchanges it was underpinned by a pervasive mentality that we were experiencing something truly unprecedented, backed by hints that oil supplies had already reached their natural limit. If you believe in the inevitability of Peak Oil, today's oil futures prices must look like a buy--a steal, even at levels over $90 for delivery in 2016 or 2017.
There are many good reasons to invest in the alternative energy sources that would help mitigate a true Peak Oil crisis down the road, and that hold the seeds of eventually escaping from that threat entirely. The real mark of success for our various renewable energy, nuclear renaissance, and energy efficiency efforts would be the eventual arrival of a peak in global oil output without crippling the economy. However, the dark side of Peak Oil is a self-defeating notion that no amount of increased investment in new oil production can make any worthwhile difference in this outcome.
If the IEA is right, we certainly can't escape this pickle by drilling alone. However, it's equally true that if oil production began to drop in the next few years, no other strategy, by itself or in combination--not even dramatic improvements in energy efficiency--could make a big enough difference to avoid a serious, economy-wrenching crisis. Many of the cars on the road in 2015 will either be those already on the road today or others very similar to them, if a bit thriftier with fuel. Nor could we electrify more than a small fraction of the global car park within that timeframe, let alone a US car fleet of 245 million vehicles at a time when sales (and thus turnover) have collapsed. Double today's biofuel output--which in that timeframe mainly means more corn ethanol, with all its problems--and we still won't have made a big enough dent.
Inescapably we will need as much more oil as we could eke out, because the whole world would be going through this transition at once. If we're saving the oil in ANWR, offshore California, and the Eastern Gulf of Mexico for a rainy day, then imminent Peak Oil would be that deluge, and it takes 5-10 years to go from bidding on leases to full production. Even if this bought us only an extra 1 million barrels per day--Mr. Pickens apparently thinks twice that--the value of that to the US in a world of $200 oil would be $73 billion/year in today's dollars, along with the possible preservation of critical services if the shortfall that went beyond a mere price spike. The US can't make up for the problem of "chronic underinvestment by oil-producing countries" of which Dr. Birol rightly warns, but we could certainly exacerbate it through deliberate under-investment in our own oil capacity.
Originally posted on Energy Outlook
Geoffrey Styles is Managing Director of GSW Strategy Group, LLC, an energy and environmental strategy consulting firm. Since 2002 he has served as a consultant, advisor and communicator, helping organizations and executives address systems-level policy.