Friday, July 4, 2008

Peaking Tom?

This post is inspired by an online debate I had this week with a "peak oiler" on NHPR's web site. My worthy opponent claimed that oil production is about to fall off a cliff, resulting in mass starvation and WW III. His main justification for this is his belief that it will soon take a barrel of oil to produce a barrel of oil, and when it does, production will crash. This didn't make sense to me. I searched the web, and found very little credible support for his argument. I did find a few web sites that echoed his claim, most using very similar words and phrases. A little more searching led me to an article by Jay Hanson (http://www.dieoff.com/page175.htm) that all the other sites seemed to be quoting. Hanson, in this "ur-essay" from 1999, claims that he is the only one who understands the "physics" of oil production, and he knows that the thermodynamics of oil production are nearly at equilibrium. He pooh poohs "economics", while providing no supporting data for his physics claims. We're left with an "exothermic" opinion - his words provide more heat than light. I'm not convinced that the energy requirements of oil production will soon equal the energy produced, and no one besides Hanson deems the issue worth studying.

That said, my research did lead me to two related articles concerned with oil production. Each seems credible to me. The first (http://assets.opencrs.com/rpts/RL34437_20080404.pdf) is well supported by data, and is well cited. The financial charts show that oil companies are not making obscene profits (5-10% profit is hardly obscene). More surprising, the oil production of all of the major oil companies is declining. Oil historically has been a cyclical business, and it's not unusual for oil production to lag when prices are low (low prices provide no incentive to explore for and produce more oil). But prices have been relatively high since at least 2004, and production is still falling. This fits what "peak oil" folks have been saying about production.

The second article (http://www.grist.org/news/maindish/2005/11/03/simmons/index.html?source=daily) is even more provocative, but hard to dismiss. The author, Matthew Simmons, is very credible. He has a PhD from Harvard and works in the oil industry. In addition, this interview was published in 2005 and he made very accurate predictions about oil prices in 2008 (it looks like he will win his bet for 2010). His claims about a rapid falloff in oil production are a much better explanation (to me, anyways) for why Bush/Cheney invaded Iraq (note that Simmons was an energy adviser to Bush/Cheney in 2000). I'm guessing that Cheney believed Simmons' projections. It never made sense to me that someone as smart (albeit paranoid) as Cheney would manufacture all that flimsy evidence about Al Qaeda ties and yellow cake to justify a war with Iraq (home to the world's largest unexploited oil fields), unless he was afraid of something "big". Perhaps the purpose of Cheney's "oil company" meetings at the White House in 2001 weren't to help his oil company buddies make money, but to understand what the truth was about worldwide oil production.

The New York Times published a long article on Simmons's claims, which mostly corroborates Simmons' projections. Now I am left to wonder about the realities of oil supply. I assumed (before reading these articles) that projections by folks like Daniel Yergin were the most plausible. That is, we'll see a flattening of world wide production (which is about 85 million barrels a day) at perhaps 90-100 million barrels within the next 5-10 years, followed by a very gradual decline over the next 30-50 years. Given that worldwide demand will easily match that production, we might soon see prices rise to $200/ bbl, but we'll adjust. If instead there's a more rapid decline, with output dropping from 85 million barrels a day to say 50 million bbls a day in the next 10-15 years, the transition won't be so comfy.

I tend to be an optimist. If oil production remains close to today's volume, prices will continue to rise but living standards won't crumble. We'll bitch and moan, but we'll adapt (there's a lot of "slop" in the American energy system). The trends that we're beginning to see now - people shifting from SUVs to compacts, moving from the suburbs to the cities, using mass transit more, driving more slowly, etc - are all positive in the long run. Higher oil prices work - we're cutting our consumption and focusing on alternative energy production. If our weaning from cheap oil is gradual we'll end up with a healthy and economically vibrant future. If however, oil production falls precipitously, we're likely to see worldwide depression, and other, more drastic consequences. What's the slope of that oil production line? Am I too optimistic? What do you make of all of this? Is Simmons a Chicken Little? Or is it time to run out and get one of these - http://gas2.org/2008/05/13/run-your-car-on-wood-no-joke/?

1 comment:

Unknown said...

John - it's been fun reading your discussion with Tim. Very exciting to see something we talk about on the air continue on the web!