The three forms of Peak Oil (let’s hope for the benign form)
This post is a follow-up to The most dangerous form of Peak Oil (8 April 2008), which I strongly recommend reading. Peak oil is a theory in that, like evolution, it is difficult to prove — at least, until after peaking occurs. We can describe three forms of the Peak Oil theory.
I. The “weak” form – This the current consensus in Peak Oil circles (the Assn for Study of Peak Oil 2004 forecast falls in this group) — Global oil production (including unconventional sources) will peak unpredictably at some point in the next 10 - 20 year. Perhaps less, as our limited knowledge about global reserves makes accurate forecasting impossible. Until then oil production will decline in most nations, offset by increased production from Middle East and perhaps the Former Soviet Union (FSU).
II. The “moderate” form — The Saudi’s will prove unable to significantly increase production, although they will maintain current output levels for many decades. Global production will peak in the next 0 - 10 years (perhaps less), probably after a plateau of several years (perhaps more). The decline rate following the plateau will be small (3% – 5%). Matthew Simmons’ evidence strongly supports this view.
III. The “strong” form — The Saudi’s will prove unable to increase their production, which will sharply peak during the next 5 years — with no plateau. The decline in global production that follows peaking will be steep (5% – 8% per year, perhaps more), with catastrophic effect on the global economy. I believe this is Simmons’ view, although he says that there is insufficient public information to do more than guess at the timing and nature of peaking.
A typology like this is an oversimplification, serving to illustrate the key factors and the range of possible scenarios.
Oil prices have increased since 2002 for unknown reasons. My guess is that prices have risen due to the same factors affecting a wide range of commodities: industrial materials, other energy sources (e.g., coal), precious metals, and agricultural products. The most likely drivers are the usual “end of boom” supply shortages plus inflation.
- Supply shortages result from under-investment during the previous commodity price bust (roughly 1982 – 2002).
- After a long economic boom, inventories often have been drawn down and there is no longer a “cushion” of excess production. Therefore the inevitable supply shocks are rapidly transmitted directly to the end users, driving up prices.
- Inflation often appears after periods of vigorous economic growth.
We can learn much about these things by reading the great works of our past. Two quick citations will end this post.
The sense of security more frequently springs from habit than from conviction, and for this reason it often subsists after such a change in the conditions as might have been expected to suggest alarm. The lapse of time during which a given event has not happened is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent.
Was John Maynard Keynes thinking about Peak Oil when he wrote this?
By `uncertain’ knowledge, let me explain, I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty … The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence … About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know.
“The General Theory of Employment”, The Quarterly Journal of Economics, (February 1937)
We know so little about our use of energy. About our reserves of coal, petroleum, and other minerals. About the relationship of energy prices and supplies to economic growth.
Worse, I have shown in previous articles, we appear to have little interest in doing the research that can provide a foundation on which to plan for peak oil. So many of our oil experts prefer inspired guessing (Hirsch is one of the exceptions), and our government has so many other things on which to spend money — rather than the pittance which could yield so many valuable insights about our use of energy.
Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
For more information about Peak Oil
- When will global oil production peak? Here is the answer! (1 November 2008)
- The most dangerous form of Peak Oil (8 April 2008)
- The world changed last week, with no headlines to mark the news (25 April 2008)
- Peak Oil Doomsters debunked, end of civilization called off (8 May 2008)
Here is an archive of my articles about Peak Oil.
Here are other resources about Peak Oil.