Peak Energy: A Reply to Kevin Drum, Part 3

This is part three in the series of posts that points out some of the problems with the current fad Peak Oil (parts 1 and 2 are here and here). Kevin’s third post deals with the issue of how much oil is left and can we get it to the surface as fast as we need it.

There isn’t much here that I quibble with. I accept that basic premise that someday oil will not be a major source of energy. I think Hubbert’s idea is fundamentally correct, but that there are problems in determining exactly how much oil is left and thus, exactly when the peak will be. If the predictions for the total number barrels that recoverable are too low, then the peak shifts back. If they are too low then the peak shifts forward. Toss into this mix the fact that as prices rise people will respond by curtailing usage you get a real iffy forecast for the peak of oil production, IMO.

With regards to that last point some argue that the peak oil analysis using the Hubbert curve takes this into consideration. This is incorrect. The Hubbert curve is determined by the following function,

Notice that price is not in there anywhere. Further, neither are the prices of the goods that are derived from oil. For the most part we don’t like oil because it is oil, but what we can use it for. One obvious product derived from oil is gasoline, and gasoline prices here in the U.S. are…unstable to say the least. This instability of gasoline prices is not solely a function of oil, but of our own making. There are a small number of gasoline refineries in the U.S. and various regions of the U.S. have their own requirements for the blends of gasoline. These two factors make the price of gasoline highly volatile. One refinery shuts down and the next thing you know gasoline prices have jumped $0.25/gallon. I think it is fair to say that without these kinds of things we might have already passed the peak in oil production. After all cheaper means that we use more.

Another statement by Kevin that is made out of thin air with nothing to support it is this.

However, there are no miracle breakthroughs on the horizon, and we have a pretty good idea of what existing advanced technology can do: it can reduce the decline of old fields, but it can’t prevent them from peaking in the first place. There’s no magic bullet here.

At first it looks pretty impressive…but how often are technological breakthroughs visible on the horizon before they are needed? At least some historical context would be nice. Maybe Kevin is right, but we have no way of knowing it since he can’t bother himself to look at various instances of technological breakthroughs. My usual example is the kerosene lamp which helped bring about the end of the whale oil trade. Did anybody foresee that replacing whale oil lamps prior to the Titusville well? Did anybody forsee the internet becoming what it is today back when it was first being suggested/discussed? What about cell phones, were those on the horizon? Did anybody see that coming? I’m sure there are other instances of miraculous breakthroughs and I’m curious…did anybody see them on the horizon 4,5 or even 10 years before they actually “broke through”? How about the polio vaccines? Did anybody see those 4 years before it happened?

Kevin also presents some impressive data on new discoveries of oil. At one point Kevin makes the following comment,

Will market forces and technology save us in the future? Maybe. But prices skyrocketed during the 70s and the rate of new discoveries fell anyway. Likewise, new technology has been put to ever increasing use during the past two decades, and that didn’t stop the decline in new discoveries either. Nothing has stopped the decline, probably because there’s just not that much new oil left to be found.

Okay, fine. However, we have a similar result for Hubbert cycles. We have not gone through a complete Hubbert cycle for a non-renewable resource, ever. But peak oil is “serious”, why because what Kevin accepts as the truth in one instance (declining oil discoveries) is not even really acknowledged in the second (that we have yet to go through a complete Hubbert cycle).

Part 1

Part 2

FILED UNDER: Economics and Business
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Asteele says:

    I think we may have to distinguish between ordinary technological developement and sudden increases in the amount of a single natural resource, I’m not sure these are the same things.

    To answer your individual questions.

    My usual example is the kerosene lamp which helped bring about the end of the whale oil trade. Did anybody foresee that replacing whale oil lamps prior to the Titusville well?

    Yes, several other fuels were in use at the time in lamps including for example camphere (distilled turpentine. Kerosene its self was first distilled from coal three years earlier in 1856, and a patent for a burner specially designed to burn this cheaper fuel already had been issued.

    Did anybody forsee the internet becoming what it is today back when it was first being suggested/discussed?

    Yes, it has been a common trope in fiction since the first bboards of the 80s. I think everyone expected computers to continue to become cheaper and more integrated. The internet didn’t drop out of the blue someday.

    What about cell phones, were those on the horizon?

    Of course they were, the first comerical “portable phone” was developed by Motorola in 1983. Since really the’re just radios the technology behind them had been available for decades, what made the modern cell-phone possible were advances in battery and coumpter chip technologies.

    How about the polio vaccines? Did anybody see those 4 years before it happened?

    Vaccine development had been going on for many many years. Clinical trials on Polio vaccines had been in place from time to time since the early 1930’s. It was as suprising as a successful AIDS vaccine would be, a breakthrough, but no one would be running around wondering how it happened.

  2. Charlie (Colorado) says:

    If a technological breakthrough is already visible, is it a breakthrough?

    In any case, since there are immense quantities of oil and petroleum-like resources available, but uneconomical at current prices (eg, oil sands and deep water methane clathrates) the whole model is flawed on its face: the total amount of resource available is orders of magnitude higher than the model proposes.

  3. Kim Berry says:

    Toss into this mix the fact that as prices rise people will respond by curtailing usage you get a real iffy forecast for the peak of oil production, IMO.

    Steve: It seems you are splitting hairs. Few would dispute that this is not a pure math problem, eg, the peak output will not occur when precisely 50% of the oil remains, and the bell curve will not follow a precise formula shape.

    The key point is that it will not be like emptying a keg of beer, where the first and last mug are extracted with the same effort and same prices. The public hears “we are approaching 50% used” and think that is like the fuel gauge on the car being at 1/2 full.

    Regarding price, must Americans will use about the same amount whether it is $2 per gallon or $4 per gallon. It may encourage some carpooling, purchase of more efficient cars in the future, etc. But likely any personal conservation will be overwhelmed by population growth.

    Did anybody forsee the internet becoming what it is today back when it was first being suggested/discussed?

    I’m BS computer science 1990, and I did not foresee the www – could not even imagine it – even though i was using email and ftp in text mode.

    HOWEVER, In the case of oil we are not talking about technology, we are talking about energy. Either we mine reserves or we capture the energy that arrives from the sun. We cannot grow enough corn to provide 20 million barrels per day. Nor can we extract that much from solar power. Wind is insignificant. hydrogen research is nonsense (imho, subject to change in the future) because hydrgen is not an energy source – it is just a fancy battery. Nuclear might be the only option, but i understand it would take a huge number of plants to replace oil

    However, we have a similar result for Hubbert cycles. We have not gone through a complete Hubbert cycle for a non-renewable resource, ever.

    Well, we went through the curve in mainland US… I’m not sure your point. Are you merely debating whether the bell curve will follow a pure mathematical curve? I’ll grant you that it will not. If there is more to your point, can you please clarify?

  4. Maniakes says:

    “Local” is a big deal. Perhaps what the tail of the Hubbert Curve actually describes is the path production takes as the resource is replaced by a convenient substitute (previously, imported oil for domestic oil).

    If there is no convenient substitute in the near future, the curve will be different as increased prices make it more profitable to go after marginal oil deposits. We’ll spend more on fuel, and it’ll make more economic sense to carpool and to buy more fuel efficient cars, but the sky won’t fall.

    If there is a convenient substitute (coal? gas? nuclear? oil shale? solar? methane hydrates?) we will painlessly shift over to that, just as we shifted to petroleum from whale oil.

  5. as increased prices make it more profitable to go after marginal oil deposits.

    Remember, the real cost of oil must contain the energy cost of extraction of the oil, and that takes energy, not dollars.

    You can shake a wad of bills at an oil shale deposit all you like, but if you need to burn 100 barrels of oil to extract 99 barrels of oil, you’re better off leaving it in the ground and burning the 100 barrels of oil in a windmill factory. (A windmill can return 30x its input energy investment, your 100 barrel investment of oil becomes the electrical equivalent of 3000 barrels of oil.)

  6. Toss into this mix the fact that as prices rise people will respond by curtailing usage you get a real iffy forecast for the peak of oil production, IMO.

    Are you talking about consumption or production? Price does not seem to effect production. Check out the Hubbert curve for the US-48:

    http://wolf.readinglitho.co.uk/chartpages/d/d2oilprodusa.html

    and compare that to Iran:

    http://wolf.readinglitho.co.uk/chartpages/p/p6oilprodiran.html

    You can see that recessions, price, external wars do not effect production, but internal wars effecting oil fields and political revolutions do.

    IMO price will not effect the general Hubbert curve for the world, OTOH the Gulf and Iraq war probably have… your earlier comment on “predictions of actual recoverable oil” is more on target. This is the great wild card because of potentially false political oil reserve revisions in OPEC countries during the 1980’s. (See Matthew Simmon’s research).

    Consumption is another story… but a reduced level of consumption due to high prices will equate to a fall in living standards in the short term, definately. Long term, who can say what will happen. Don’t you think it is a sensible idea to prepare for the eventuality. We must deal with this or our children will.

    Another statement by Kevin that is made out of thin air with nothing to support it is this.

    However, there are no miracle breakthroughs on the horizon, and we have a pretty good idea of what existing advanced technology can do: it can reduce the decline of old fields, but it can’t prevent them from peaking in the first place. There’s no magic bullet here.

    At first it looks pretty impressive…but how often are technological breakthroughs visible on the horizon before they are needed?

    How can you say there is nothing to support this statement? Are you saying that a technology will come along that prevents oil fields from peaking? All technological improvements on oil production have simply sped up the production, speeding the decline. You’re been pretty unfair to Kevin… you are perhaps, dare I say it, beating a straw man? He is explicitly talking about oil fields and technology, not energy and technology.