Has Petroleum Production Peaked, Ending the Era of Easy Oil?

An interesting summary of an article in Nature can be found in Scientific American:

Despite major oil finds off Brazil's coast, new fields in North Dakota and ongoing increases in the conversion of tar sands to oil in Canada, fresh supplies of petroleum are only just enough to offset the production decline from older fields. At best, the world is now living off an oil plateau—roughly 75 million barrels of oil produced each and every day—since at least 2005, according to a new comment published in Nature on January 26.

The article's by David King, who used to be chief scientific advisor to the UK government, and oceanographer James Murray (University of Washington, Seattle).

They point out that oil production from conventional resources (i.e. not the inefficient and polluting tar sands and NGLs) has been flat since 2005, despite wide swings in price. Basically, we now have 'inelastic supply', where the volume of oil that can be pumped is fixed, no matter what happens to the demand and price. Finding new oil reserves won't make any significant difference, because we already have a huge base of declining production - more than half the current production will have gone by 2030. This leaves a huge gap to be filled, so the chances of being able to actually increase production are zero.

They also state what has been obvious to many people:

Of the 11 recessions in the United States since the Second World War, 10, including the most recent, were preceded by a spike in oil prices. It seems clear that it wasn't just the 'credit crunch' that triggered the 2008 recession, but the rarely-talked-about 'oil-price crunch' as well. High energy prices erode family budgets and act as a head wind against economic recovery.

So although the banks and sub-prime lending were clearly a problem, it's the oil shock of 2005-08 that really set the whole thing off, and it's the current persistently high oil prices that are preventing a sustained recovery:

The global economy is severely knocked by oil prices of $100 per barrel or more, creating economic downturn and preventing economic recovery.

They also point out that economic growth requires a growth in energy supply, and say:

We need to decouple economic growth from fossil-fuel dependence... This is not happening due to industrial, infrastructural, political and human behavioral inertia. We are stuck in our ways.

The problem is that economic growth always results in more consumption of resources, both energy and material. Otherwise, what's the point of it? If you can't use your increased wealth to go somewhere, do something or buy something then you may as well not have it. Of course if prices go up, there can be notional 'growth', but because of inflation you're actually getting the same or less than you did before. This applies whether the source of energy is renewable or not.

So we're back to the problem of economic growth itself... time to watch money as Debt again I think...

Mike

UPDATE: the article from nature can be found here: 

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Humanity can and must do more with less: UNEP

Today the United Nations Environment Programme (UNEP) launched a new report on decoupling economic growth from natural resource use and environmental impacts.

The press release says:

Already the world is running out of cheap and high quality sources of some essential materials such as oil, copper and gold, the supplies of which, in turn, require ever-rising volumes of fossil fuels and freshwater to produce.

When it comes to oil, the report says:

Oil production has already peaked and declined in the majority of individual oil producing nations, and in large regions such as North America and Europe (Hirsch, 2008). Thus ‘peak oil’ is an empirically verifiable phenomenon (Sorrel et al., 2009, p.vii). Evidence suggests that the world is rapidly approaching a world oil production peak. Global new oil discoveries reached their height in the 1960s and have been on a declining trend ever since (see Figure 2.10), despite remarkable improvements in exploration, drilling and extraction technologies, and episodes of high prices in the 1970s and 2000s (ASPO, 2009).

Several scenarios are covered in the report, but the key point made is that 'business as usual' cannot continue - there simply isn't enough raw material on the planet for that to happen, whether that's oil, gas, metal ores or topsoil. One scenario considered includes a contraction in resource use by developed countries of two thirds, while other countries remain the same. The report acknowledges that this scenario is so restrictive that no politician will ever accept it as a goal, yet it would still leave CO2 emissions at the same level as in 2000, not to mention the resources needed - which simply won't be there.

A few challenges are identified in the press release that relate to the oil debate:

• Policymakers and the general public aren’t yet convinced of the absolute physical limits to the quantity of resources available for human use.
• The best and most easily accessible mineral ores and fossil fuels are being exhausted. New sources are generally more remote and of lower quality. Finding and extracting them takes more energy and increases the environmental impact. About three times more material needs to be moved for the same ore extraction as a century ago, with corresponding increases in land disruption, water impacts and energy use.
• Resource extraction increasingly occurs in countries with lower legal and environmental standards, meaning “environmental impacts per unit of extracted material might become more severe.”
• A “rebound” effect often leads to increased consumption after energy or manufactured goods become more efficient as consumers take advantage of cost savings to buy something else, or use a device more often – for example: putting more kilometres on a fuel-efficient car.

There are two key issues that come out of it for me:

1. Economic growth cannot continue in the long run. The report does mention this in a roundabout way, but what it comes down to is that if people get more wealthy they consume more resources, whether it’s a larger house/car, eating more meat, going on more holidays, etc. This clearly isn’t possible with finite resources, as the report makes clear. However, this doesn’t mean we can’t redistribute what we have globally, and within nations, to deal with poverty. It’s a hard one for a politician to sell though!

2. The second point isn’t mentioned in the report. It is that if global economic growth (in a physical sense) cannot continue, then our system of money will break down at some point. This is because debt needs interest paying on it, and the money to do this can only come from growth. If we have economic growth in a financial sense without any growth in a physical sense, that’s just inflation, and the money system still falls apart eventually. There’s an excellent video covering this topic here. Once again, it’s not a topic that’s easy to convince voters on, even if it is an inevitability that we will have to shift (or collapse...) to a new system of money at some point. There are a lot of vested interests that will be hurt by the shift/collapse when it happens. I suspect this is part of the reason commodity prices in general are so strong – people with money to invest are realising that their money is safer in ‘stuff’ then cash or stocks.

As Mark Twain said

"Buy land. I hear they're not making it any more."

...but make sure it's well above sea level and not too far from home, given the contents of this UNEP report!

The full report will be available for downloaded here soon.

Mike

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