Still peak oil, folks

di090416

Interstate highway of 2020?  I doubt it.

I was reading through an issue of New Scientist from 2008 so I can throw it away. It contained a full-page ad (albeit badly laid out) for a book called “Oil Apocalypse“. Yes, it looked stupid then and it looks stupid now. Hiring someone with more than high school background in web design could make it not look like My First Little Homepage Of Insane Theories. But that would not change the content.

“The rich will travel by horse and cart. The middle classes will use bicycles. The poor will walk. The oil is running out and, as a result, our civilization is reaching its end. There’s going to be a massive, unprecedented shortage of food. Five billion people will die within a very short space of time.” Pretty memorable scaremongering, but actually not the worst possible scenario. That would probably be the one where one of the world’s great nations run out of fuel for their army in the midst of a protracted war, and have to whip out their nukes or suffer a humiliating defeat and possibly occupation. Now that would be truly apocalyptic. But even Vernon Coleman’s scenario is quite unpleasant. And luckily quite unlikely.

“Quite unlikely” may sound too generous when the price of crude (unrefined) oil has fallen by over 70% since its peak last year. If you see something in the shop marked “70% off”, you will probably conclude that there is probably not a desperate shortage. More like someone is desperate to get rid of it.

So is “peak oil” just another insane quasi-theory like “aliens killed J.F. Kennedy”, “the Virgin Mary was kidnapped by an UFO and impregnated” or “the Bush government blew up World Trade Center”? Not quite. It is just that the “peak” here is not one of those needle-like alpine peaks. It is more like a huge mound. You see, what “peak oil” really means is just that we have reached the maximum production per hour. It does not mean that we are anywhere close to reaching the end of the reserves. However, oil has already for a while become more and more expensive to extract. So it is not like “Oh gee, we just accidentally used the last gallon! Whatever will we do now?” Rather, it is like “Oh man, gas is getting so expensive these days, we better change our plans.”

I have not heard of any economist – or anyone else, actually – who doubts that the current recession is the worst since the Great Depression. And yet the price of crude oil is 3-4 times what it was in 1998. In fact, many of the oil fields opened since then would sell at the loss with those prices. Saudi Arabia could still turn a profit, but Saudi Arabia can no longer supply the whole world. Even in the midst of a recession, a billion Chinese are still living a modern city life where they used to plant rice on the family farm. The growth of the developing world has been the main source of the upswing in demand; and while some of these economies are shrinking now, most are stable at worst, and China is still growing. We are used to economic growth; but even if economic growth for the whole world fell to zero, we would still be using about as much oil as last year. And that was a lot.

Well, actually we would use a little less. Perhaps 1% or so. This is because the steady march of science and technology allows us to use energy more efficiently for each passing year. In addition to this, there is a slow trickle over from gas and diesel cars to electric and (especially) hybrid cars. And even among gas-driven cars, newer models use less fuel than the old that are phased out. But it is not enough to make a serious dent in oil consumption. Before these trends have time to greatly reduce our consumption, oil will begin to get scarce again. And of course, if the recession ever ends, oil prices will jump right back up. Economic growth is almost always reflected in higher energy use.

But not all energy needs to come from oil, or even from other fossil fuels like coal or natural gas. When the price of oil and gas skyrocketed last year, everyone and their broker went into renewable energy, like sun or wind power. Now that urgency is gone, of course. And some of the companies in that sector are no doubt going to go out of business. But not all the investments are going to just evaporate. New technologies and large-scale production will allow these “alternative” energies to become more affordable, and when the price of oil necessarily starts rising again, it will meet stronger competition than before.

So instead of horse and cart, we will have electric cars. But I am not really saying we won’t see a fall in material standard of living. This is already happening. Right now we may want to blame the subprime mortgages (or even rich bankers, if you’re a leftist) for all our problems, but last year we had both a gas crisis and a food crisis. They were not all that critical here in the rich world, because we could simply borrow more money and continue to live like before. That won’t work anymore.

As I have said before, I don’t think we will exactly recover from this recession. The economy before it was artificially ballooned by imaginary money and wild hopes. So even returning to sanity would be like a moderate recession compared to that. And by the time we get back to sanity from panic, a lot of things will have changed. Because things change very fast these days. There will be less oil in the ground than ever before, yes. But it is highly unlikely that we will have exchanged our cars for horse buggies. (Well, your cars – I don’t have one and hasn’t had for decades. Man of the future, that’s me!)