Peak Oil: A Breakdown
Supply, Demand and Oil Prices
Supply influences price, which in turn influences demand—the less there is of something, the more it costs, which then reduces the demand for that thing. Price also influences supply, both directly—by encouraging more people to get in the business of supplying that thing—and indirectly—by encouraging the development of new technology that stretches supply.
A recent example is what happened with gasoline in the United States in late 2008:
- the increase in gasoline prices caused people to drive less
- the price increase caused sales of hybrid and fuel-efficient cars to increase (though that reversed itself when prices fell again)
Is There a Consensus Opinion?
The DOE believes this prediction is fairly conservative, and it’s on the lower end of a range of “peak dates” (which vary by the exact assumptions made about oil reserves and consumption) that the department believes are credible, ranging from 2021 to 2112.
Of course, even though the DOE feels that its estimate is conservative, some people feel it’s overly optimistic. Simmons, for example, thinks world oil production peaked in 2005 or 2006.
Of course, despite Simmons’s own admission that you only know the peak when looking backwards, he’s assuming that the only cause of a recent flattening of production is the dreaded peak, instead of it possibly being due to some or all of the following:
- Political actions, such as Venezuela’s nationalizing private production
- Economic decisions, such as when OPEC nations reduce production to support oil prices
- Natural disasters, such as Hurricane Katrina or Hurricane Ike
What’s the bottom line? We don’t know for sure, though the DOE’s prediction of a 2037 peak hangs together with our earlier, back-of-the-envelope calculation that if nothing changes, we’d expect to run out of conventional reserves—the easy-to-find, cheap-to-use oil—in another forty-plus years, or around 2050.
Soft Landing vs. Hard Crash
The really big question is, “What does a peak and decline in oil production mean?” As with the debate over the whether and when of the peak, there’s no agreement on what will happen next. Depending on your assumptions about human nature, society, and technology, predictions run the gamut from:
- A Malthusian crisis in which society collapses. People go cold and hungry, until they start eating each other and burning books for warmth. Think Mad Max, but less cheerful.(If you want to read some of the most dire predictions, try lifeaftertheoilcrash.net, dieoff.org, or the work of Jim Kunstler.)
- A long-lasting global recession, in which society goes on, but economic opportunity and security are limited. It’s a stable but somewhat bleak and dystopian future. Think Blade Runner, but without Daryl Hannah as Pris.
- Nothing much—as the price of oil rises, it encourages a combination of conservation, discovery of new fields, technological advances that make unconventional oil practical, and development of new energy sources. We meet the challenge, rise to it, and master it. Think Star Trek—no warp drive or transporters yet, but a sort of forward-looking, can-do world.
This last notion—that peak oil will happen, but will be more of a hiccup than a heart attack—is based on the idea that as a resource becomes scarce, technological advances and behavioral changes accommodate the scarcity. It’s based in part on the work of economist Robert Solow and his theory of “back-up resources”—that when one resource runs out, society finds another. It may also have precedent: some people believe the West already met and conquered its first energy crises in the late 1500s. Wood had been the fuel of choice through the 1500s; however, as England’s population grew, the island nation started facing a “peak tree” problem. Large parts of England were becoming deforested, and the price of wood was soaring. Did England’s economy come crashing down? No—England began using coal, which not only averted a “wood crisis” but also made possible the Industrial Revolution.
The idea is that what happened before will happen again, and the world will navigate an oil shortage the same way. That’s not to say there’s no need to worry, or that that we shouldn’t conserve resources while investing in alternate or unconventional fuel technology, but it does suggest that there’s no need to figure out which neighbor you’ll eat first when civilization collapses from oil starvation.