The Peak Oil Crisis: It‘s All Around Us

September 17, 2014 8:58 PM33 comments

Ten years ago peak oil was assumed to be a rather straight forward, transparent process. What was then thought of as “oil” production was going to stop growing around the middle of the last decade. Shortages were going to occur; prices were going to rise; demand was going to drop; economies would falter; and eventually a major economic depression was going to occur. Fortunately or not, depending on your point of view, the last ten years have turned out to a lot more complicated than expected. Production of what is now known as “conventional” oil did indeed peak back around 2005, and many of the phenomena that were expected to result did occur and continue to this day.

Oil prices have climbed several-fold from where they were in the early years of the last decade – surging upwards from $20 a barrel to circa $100. This rapid jump in energy costs did slow many nations’ economies, cut oil consumption, and with some other factors set off a “great” recession. Real economic hardships have not yet occurred.

Much of this is due to the reaction that set in from high oil prices and increased government intervention into the economy. In the case of the U.S., Washington turned on the modern day equivalent of the printing presses and began handing out money that was used to develop expensive sources of oil and gas. The high selling price per barrel, coupled with cheap money led to a boom in U.S. oil production where fortuitous geological conditions in North Dakota and South Texas allowed the production of shale oil at money-making prices provided oil prices stay high.

U.S. unconventional oil production soared by some 3.3 million barrels a day (b/d) in the last four years, and, if the US Energy Information Administration is correct, is due to climb by another million b/d or so in 2015. While this jump in production was unexpected by most, it was just another phenomenon resulting from unprecedentedly high oil prices, which in turn resulted from the lack of adequate “conventional” oil production. As is well known, economic development can have major reactions and feedbacks.

What is so interesting about all this is that a temporary surge in what was heretofore a little known source of oil in the U.S. is masking the larger story of what is taking place in the global oil situation. The simple answer is that except for the U.S. shale oil surge almost no increase in oil production is taking place around the world. No other country as yet has gotten significant amounts of shale oil or gas into production. Russia’s conventional oil production seems to be peaking at present, and its Arctic oil production is still many years, or perhaps even decades, away. Brazilian production is going nowhere at the minute, deepwater production in the Gulf of Mexico is stagnating and the Middle East is busy killing itself. On top of all this, global demand for oil continues to increase by some million b/d each year – most of which is going to Asia.

If we step back and acknowledge that the shale oil phenomenon will be over in a couple of years and that oil production is dropping in the rest of the world, then we have to expect that the remainder of the peak oil story will play out shortly. The impact of shrinking global oil production, which is been on hold for nearly a decade, will appear. Prices will go much higher, this time with lowered expectations that more oil will be produced as prices go higher. The great recession, which has never really gone away for most, will return with renewed vigor and all that it implies.

An additional factor which has grown considerably worse in the last ten years is climate change, largely brought about by the combustion of fossil fuels. We are already seeing global weather anomalies with record high and low temperatures and record floods as well as droughts. This too will take its toll on economic development as mitigating this change will soon become enormously expensive. We are already seeing migrations of restive peoples. Thousands are dying in efforts to get from the Middle East and Africa into the EU. Millions are already homeless across the Middle East and recent developments foretell hundreds of thousands if not millions more being added to ranks of refugees as decades and even centuries-old political arrangements collapse.

All this is telling us that the peak oil crisis we have been watching for the last ten years has not gone away, but is turning out to be a more prolonged event than previous believed. Many do not believe that peak oil is really happening as they read daily of surging oil production and falling oil prices. Rarely do they hear that another shoe has yet to drop and that much worse in terms of oil shortages, higher prices and interrupted economic growth is just ahead.

We are sitting in the eye of the peak oil crisis and few recognize it. Five years from now, it should be apparent to all.

  • LuapLeiht1

    This fool lost me in the first paragraph with his ambivalence about a worldwide depression maybe not being a bad thing…depending on your view.

    Energy production is an area the United States has always led in and others have followed. The corrupt regimes the author mentioned will cash in on the bandwagon we built once they get their act together.

    Sorry but the apocalypse is on hold for the indefinite future…

    • Chris Lambert

      Wow, sounds like he lost you so thoroughly that you didn’t actually read it! Where do you live, that you don’t see the crisis all around us? Mass extinctions, migrations, forest fires, the list goes on.

    • Kevin Brey

      I agree with you. There are hundreds of thousands of older wells, both
      conventional and horizontal, that can be “worked-over” to produce more
      oil from the same wells.

    • James

      Energy production is an area the United States has always led

      – US oil production peaked in 1970. We’ve not been a leader since. EIA expects fracking to peak in 2018, so this increased production will just be a blip in long run.

  • Gib

    Your claim that ‘economic development can have major reactions and feedback’ is quite correct…ask anyone in North Dakota or Colorado or Oklahoma or Kanas or Texas what it’s like to have a real job with real wages along with a real future. If the surge in oil prices to $100 is too high as you assert, what evidence do you have that $20 oil wasn’t too low??? The surge in 3.5 million barrels per day is no small thing and has not been the result of anything the government has done, but rather the incentive free people have had to better themselves by exercising their rights to pursue happiness, which helps explain why this phenomenon has not found its way around the world where people aren’t quite so free. ‘Migration of restive people from the Middle East’ as being a consequence of climate change as you assert, is a patently dishonest connection of the facts. ISIS is no more concerned by climate change than those who are fleeing the Middle East. Finally, your conclusion that what we can’t see today, as you assert you can, will be apparent to all in five years, ignores the fact that none of us, including you, could have seen five years ago that which we are experiencing today. I can personally attest that as a Petroleum Geologist for past thirty eight years, I’ve seen a lot I could have never imagined.

    • Gene_Frenkle

      Liberals simply do not understand how capitalism works. If somebody is billionaire in the US that probably means they made something like a device that every American can afford that puts all of the world’s knowledge in your pocket!!! How evil!!!

      The free market solved a HUGE problem by developing fracking and now Americans have access to cheap natural gas for the foreseeable future and the private sector can use the cheap natural gas to make transportation cheap.

      • Walter Libby

        The free market offshored our manufacturing jobs to communist China; must be good, since that is how capitalism works. I guess the American dream was a huge problem. Stupid Obama with his stimulus act. Damn the Federal Reserve with its historic low interest rates. By the way, where are those devices manufactured?

        • Gene_Frenkle

          Bush started the stimulus in 2008 and Bush started the bailouts. I supported the stimulus at the time but fracking and increased energy production is clearly why the US economy is outperforming Europe. The job market has underperformed since 2001 and the Bush and Obama economic policies have simply not worked with regard to the job market and wages. Fracking can enable us to bring back a lot of those jobs to the US, Canada, and Mexico.

          • Walter Libby

            Wow! The audacity of hope. The thing is that the real threats to civilization,globalization and peak oil, have been trumped by global warming. Re: Trials and Tribulations: the Contingency Plan where I focused on globalization. So, what do I have to say about global warming? This coming winter will be the prologue, and then I’ll tell the tale.

          • Gene_Frenkle

            Bush believed in Peak Oil theory and I actually supported climate change action on the grounds of Peak Oil theory, so I supported Democrats prior to 2010 because my goals were aligned climate change activists which was finding alternatives to coal and oil. Prior to fracking natural gas was seen as a bridge fuel but now climate change activists irrationally oppose fracking and increased consumption of natural gas.

            That said, it appears Obama and Clinton have been ignoring the anti-frackers and now that Pennsylvania and Ohio are fracking I hope Clinton takes a vocal stand against the anti-frackers in 2016. I will consider voting for Clinton if she is vocally pro-fracking and anti-war if the Republican candidate is pro-war.

        • Danny

          don’t be stupid Walter…the super wealthy get welfare and so do the poor the only people who take on the burden is the middle class…

      • johnvoelcker

        @Gene_Frenkle:disqus Never mind about those little externalities like carbon, eh?

    • James

      “but rather the incentive free people have had to better themselves by exercising their rights to pursue happiness”

      I’m not sure it’s “pursuing happiness” (i.e. money) as much as it is just debt

    • the81kid

      The IEA has said that fracking production in the USA will peak before 2030 – and probably before 2020. That´s the IEA, hardly a doomsday cult.

      • Spartanzz

        and those predictions are optimistic

        we’re looking at the mother of all energy crisis kick starting around 2015-2020

  • All hype aside, the world is currently pumping more oil out of the ground each day than ever before in human history. Worldwide demand is expected to grow by 20% by 2035, an additional 14 million barrels a day in production. There is a real question whether oil production can be increased by that amount to meet demand. A strong biofuels program seems a logical insurance policy to ensure the world has enough liquid fuel to meet demand in the future. In the US, biofuels have already displaced nearly 10% of the gasoline sold in the US while saving the consumers money. New studies suggest that a new fuel could be made using ethanol that would have the octane rating of premium but cost less than regular, enabling car manufacturers to return to building more efficient high compression engines. Incremental steps like this could help ameliorate the consequences of potential future oil shortages.

  • Gene_Frenkle

    I will buy a Chevy Volt next year and the car will go 40 miles on $1 of electricity. The Oil Era is over–that means by 2025 the average American will not really care about the price of oil on a day to day basis although oil will still be important.

    Natural gas can also displace oil in transportation so we have viable alternatives that did not really exist in 2005 because we thought we were running out of natural gas at that time. Peak oil theory (which Bush/Cheney believed in) has been discredited just like climate change theory and liberals just need to accept that and move on.

    • James

      “The Oil Era is over”

      hmm, maybe a bit soon to say that. We’re using more oil now than ever. I’m pretty sure by 2025 we’ll still be concerned about the cost of oil, as we always have been. The transition away from oil is going to take *a long* time.

      Electric/natural gas cars can absolutely replace oil, but at present, electric car market is like 0.1% of total sales.

      Here’s my prediction — in 100 years, we won’t be burning as much oil total or per person as we do now. What happens between now and then is still up in the air.

      • Gene_Frenkle

        What I mean is that by 2025 oil will be like coal, so oil will still be very important but we will not be engaging in military actions to keep oil flowing freely for the global market.

        We have viable alternatives to oil that if the initial price is right are more convenient and cheaper over the long run. A car like the Volt can easily be superior to a car with only an ICE if the cost of batteries falls low enough which is happening. A Volt travels 40 miles for $1 and one rarely has to stop at a gas station. A Volt plugs in to any outlet, nothing special is needed. I actually think autos are going to get bigger and travel will be cheaper because of how efficient and cheap EVs are. An EV Escalade could travel 40 miles for $2 once the costs of batteries fall low enough to make the initial purchase price economical.

        • James

          “we will not be engaging in military actions to keep oil flowing freely for the global market”

          I’ll have to disagree here. We *will* bomb people to keep oil flowing.

          You’re only talking about cars. What about the price of oil needed to fly a 747? Or run mining equipment? Or produce fertilizer for agriculture? Or run a combine harvester? There is no solar/wind/nuclear option here. A transition away from oil cannot be made quickly — it would take probably 50 years to get off oil completely if we stopped subsidizing oil.

          • Gene_Frenkle

            Natural gas can be converted to kerosene and diesel so if the price of oil stays around $100 and natural gas is cheap then it makes economic sense to convert natural gas to jet fuel. So by 2025 the airlines will have enough time to invest in hedges against high oil prices.

            Natural gas is expensive to ship but cheap to pipe so the global natural gas market will never rival the oil market and we have HUGE natural gas reserves. Natural gas will be used for fertilizer and industrial uses and that is great news for Canada and Mexico as well!

          • James

            “So by 2025 the airlines will have enough time to invest in hedges against high oil prices.”

            Yeah, Boeing doesn’t just design planes in a couple of years. It took 10+ years of development for Boeing to roll out a plane — and it just uses *slightly* less oil. I’m not aware of a natural gas plane in the works.

            You also forget — gas is going to peak soon also. If everything starts to switch to gas, gas will then peak much sooner. Soon after we’ll hit peak coal.

            None of these solutions will make it to the next 100 years. By 2114, we’ll have to be totally off oil/coal/gas. Other things will peak also, like metals & phosphorus.

          • Gene_Frenkle
          • Walter Libby

            Help me out here: does half of our oil go into petrochemicals?

    • beardedman

      I had a 2011 Volt and now have a 2014 Volt. Fantastic, super reliable car. I can’t got back to a pure gas car. I drive 100% electric all week and use a couple of gallons on longer weekend trips now and then. No range anxiety and all the benefits of driving electric. Just about the perfect car for the times.

      • Gene_Frenkle

        Mark my words–in 2016 the Volt will outsell the Prius in California.

  • Tom Colbert

    welcome back from your e-cat hallucination!

  • the81kid

    If your doctor told you that you have 1 year left to live from cancer, and in 2 years you were still alive would you go back to the doctor and tell him: “you’re a quack!” We just got a small reprieve, that’s all.

    Another warning that virtually nobody will heed. As a collective, we have reached the point of all out denial: “Economics and innovation will save us! We just need to be more optimistic!”

  • Spartanzz

    Great article, the real energy crisis hasn’t even hit yet. When the West understands that the fracking frenzy state side was nothing more than a temporary reprieve then the fun and games should really start and given the recent California shale downgrade quietly declared by the EIA a whopping 96%! that moment is rapidly approaching.

    We’re eating the barrel nevermind scraping it. As soon as unconventional production fails to offset the decline in conventional, it’s game over.

    All the predictions are pointing towards the mother of energy crisis around 2015-2020.

    2008-2015 was just the calm before the mother of all storms.

  • Michael Evan Jones

    Some folks NEED a 2 by 4 across the head to recognize it.

    • Gib

      How can any of you predict the future when you can’t even understand the past? If you love the Volt, fantastic and good for you. If you love a Ford 350, fantastic and good for you. What makes this country different from ANY other country is our freedom to choose. Unbeknownst to most, ALL OF US are the free market, and our choices drive that market. Innovation, driven by a need recognized by a person who has the freedom to recognize and meet that need is exactly what leads to discoveries and advancement in a society’s standard of living. Heavy-handed big government discourages this which is why the greatest advancements have always been made under a constitutionally-protected free society. Let the market by the people make these choices!!

      • Hi Gib. Thanks for your vote of confidence in the USA’s freedom to decide. I would have bought a Smart Car ten years ago if I had been free to choose however so do not play that up tooo much. We can choose only within our market limits (like any other country on earth). The problem in my mind is the excessive power our ‘old businesses’ like Ford, GM and Shell have over our ‘democracy’ in this country. We have a one dollar one vote democracy at this point – which completely effects our choices and our economy. Gotta love your enthusiasm for the free market though! keep up your idealism. I hope that our climate can handle the last wringing out of our resources however.

  • Pumbah

    Mr. Whipple, who previously ran a grocery store and then was eventually fired for obsessively squeezing the Charmin, has been peddling peak oil gibberish for a good ten years for a living. Now this gig is threatened by that ongoing nemesis of liberals called reality. So what to do? He does what the former global-warming-now-climate-change-of-some-obscure-type misfits have done, rewrite a few former computer-modeling gigo (garbage in, garbage out) results to fit his invested narrative. Basically he’s too old to learn a new, valuable skill to pay his bills.

Facebook Iconfacebook like buttonTwitter Icontwitter follow buttonGoogle+Google+