Forgive me while I publicly ponder a bit about where I think we’re headed on the world oil front, and how I think some of the trends already in evidence will play out in the short- to mid-term.
First, a quick recap:
- We’ve already seen a dramatic rise in the world price of oil in recent years, at least as measured by the incredibly shrinking US dollar.
- We’ve seen world oil output trundle along on a plateau since early 2005, with crude oil production (currently roughly 85% of total oil production) actually declining slightly.
- We’ve seen world oil demand gallop along, pushed most notably by China and (to a lesser extent) India.
- We’ve heard constant predictions of absurdly high, science-fictional levels of oil production by 2030 from places like the US Dept. of Energy, as well as the usual constant chorus of wails from the doomers. (Quick aside: Am I the only one who thinks that the doomers are the ones who identify most with Bill Paxton’s character in Aliens, the guy who was constantly whining and had to be prodded into action?) Not to be outdone, the cornucopians have filled the air with claims of vast oil production from to-be-discovered finds in Greenland and everyone’s favorite deus ex machina, dramatically enhanced oil recovery from existing fields.
- We’ve seen all sorts of “interesting” things from the Persian Gulf, such as their oil reserves remaining stupefyingly unchanged, year after year, despite high levels of production, plus claims of dramatic production increases from Saudi Arabia coming by 2012.
- We’ve see some mature fields, like Cantarell and the North Sea, decline in output dramatically, which only serve to accelerate the concentration of production capacity in the hands of OPEC.
- We’ve seen the slumbering auto industry suddenly peel one eyelid open and start paying attention to the oil situation as well as the growing demand from consumers for cheaper transportation options.
OK, so what’s next?
- We will very likely see at least some increase in world oil output. Will it get us all the way to 92 million barrels/day, as Chris Skrebowski predicts? I’m less confident in that number than he is, but I wouldn’t rule it out. This will trigger endless victory dances and chest thumping from the cornucopians as they absurdly claim that it “proves the peak oil guys were wrong.” Their stunningly myopic world view will be apparent to everyone but themselves.
- Some oil exporters, most notably OPEC, will continue to “show restraint” in their shipments. The ongoing Kabuki dance, in which the importers plead for more oil (as Bush did this week in Saudi Arabia) and the exporters say, “There’s plenty of oil on the market–blame those dastardly speculators!” will continue.
- In just a few years (possibly as soon as right now or even our recent past), the major exporters will have to face a tough choice: Admit to the world that they have zero additional capacity and that they’ve lied to us for years, or try to keep convincing everyone that they have the capacity but simply choose not to ship the oil, even as the world oil price continues to climb. It’s anyone’s guess how long the dance can last in that highly tense state.
- World oil demand will continue to gallop. China’s growing consumption, plus that of many oil exporters, and relatively new developments, like the introduction of very cheap cars in India (e.g. the Tata Nano) will very likely ensure that even a deep recession in the US won’t cause a significant dip in world oil demand, and it could even continue to rise.
- The vast majority of legislators in the US will continue to act as if the phrase and concept of “peak oil” doesn’t exist. All of their efforts will be focused on “achieving energy security” (or “energy independence”, when they’re in the mood to make my head explode) and reducing CO2 emissions. Those two goals, both important and laudable in and of themselves, will be used as proxies for peak oil simply because the legislators will continue to believe that American voters will lose their minds if told that there isn’t an infinite amount of cheap oil in the ground.
- The transition away from oil, particularly for US transportation, will happen sooner and quicker than casual observers expect. Ford, Toyota, and GM are all promising plug-ins of one variety or another in 2010, and customer acceptance of them will be very enthusiastic. By the time I sell my 2006 Scion xA, it could be seen as a gas guzzler.
- The interaction between global warming and peak oil is much harder to predict. It’s quite possible that the dramatic polar melting we’ve seen (or discovered) recently will take a year off, as the reduction in Arctic sea ice extent did in 2006, leading to the deniers, once again, claiming a non-existent victory, only to be dumbfounded 12 months later when the melting returns with a vengeance. If we’re very unlucky, and the melting and drought conditions we’ve seen are not just the new pattern but a prelude to even more dramatic climate changes, then the world will have to face some very serious challenges, all related to one issue: How do we transition transportation and electricity generation and stationary energy consumption away from CO2-intensive technology much quicker than we thought would be necessary? This scenario (which I’m most definitely not predicting, just to be clear), could result in even the most right wing governments imposing very high carbon taxes on energy consumers in a desperate effort to accelerate that transition to a post-carbon economy.
- Our future will be a lot of things, but “dull” ain’t on the list.
What do you see in your crystal ball?
Update: Sorry for the omission and late addition. I was so focused on the details that I forgot one of the biggest questions of all in my road map, the date of peak oil. Until I see evidence that convinces me otherwise, I’m sticking with Chris Skrebowski’s 2012 date for the all-time, world peak of oil production.
January 20th, 2008 at 8:45 am
Several other things also come to mind:
The inelasticity of demand (at least so far) will couple with the growth of demand in India and China, where that demand will keep growing even as our demand slows or even declines. The hope which I had that a mild recession would give us a breather are diminishing as the rest of the world watches our problems, as if to say “Wow, I’m glad that is not us!” Thus, my current anticipation is no breather and PO hits like a thunderbolt from a clear sky, which is not to say that disaster is imminent, but if we have hoarding during a recession, it will get nasty.
Second, I am hearing small producers recite a $200/Bbl anticipated price and wonder what the price will end up at? (I know you hate meaningless price predictions, Lou, but I felt compelled to bring this into the equation.) The price variability/mitigation due to manufactured fuels is probably about at an end, since raw material costs are rising and the promised switchgrass technology is not ready yet. Accordingly, unless there are quick developments in the biodiesel from pond scum - type developments to quickly and effeciently bring about a shift that will reach a point where Coal-To-Liquid conversion will become urgent, and the CO2 emissions will rise dramatically from that processing. The EROEI of manufactured fuels already stinks, but the fuels will come from someplace.
2008 will bring dramatic changes, in CC and in PO and I doubt that any of them will be for the better.
We will just have to wait and see if we hit Peak Pond Scum this year, if the technology does come to fruition.
January 20th, 2008 at 11:07 am
I don’t mean to make light of what you said, but I had this horrifying vision of Lake Ontario turned into an immense pond scum farm…
The $200 price thing has been popping up, and I’m not sure what to make of it. Will another doubling of the price of oil be enough to push a majority of even American consumers to taking all those conservation steps I’m always yammering about? I honestly don’t know. If that price isn’t high enough to trigger that reaction, then we could see $200 in 3 or 4 years. If it is, then the price will likely peak below that level.
A critical thing for all of us to keep in mind is that there are two types of response to permanent, significantly higher oil prices than what we consider “normal”.
Type 1 includes all the changes we can make without a significant infrastructure change. No one buys new cars, there’s no change in the fuels at your local gas station, etc. We just use transportation and other oil consuming applications more judiciously.
Type 2 requires infrastructure changes–buying smaller cars and hybrids and plug-ins, switching home heating systems from oil to natural gas, etc.
These things will happen in parallel, to some extent. The thing I find the most puzzling is how American consumers seem much more willing to adopt Type 2 responses, even with the added expense of buying a new car sooner, for example, instead of the Type 1 response, which normally has very low or zero up-front cost. Maybe Americans just want a quick and easy solution–throw enough money at the problem and in the right way and the issue goes away–and they see making (gasp!) lifestyle changes to be much more onerous. Or maybe they just love to buy shit.
On a slightly more serious note, I think this also reflects the basic nature of our consumer culture: We’re noun oriented, not verb oriented. We think in terms of stuff, not how we use it. This is a shame, as there’s so much insanely easy conservation right there, ready to be exploited, and much of it doesn’t even require so much as a minor lifestyle change. Americans could lay off the hard acceleration, save 20% on their gasoline consumption at a bare minimum, and reduce the country’s oil consumption by nearly 2 million barrels/day, almost 10%, and do it starting right now. But they don’t know what a difference they could make to their own cash flow and the the future of their kids and their country, so they don’t even consider it.
January 20th, 2008 at 4:39 pm
I find it deeply ironic how “concerned” many Americans are about China’s growing CO2 emissions; or maybe its just the press that likes to focus on how bad pollution is in China, while our government enables higher lead and mercury levels in everthing we consume (dare I say “literally”?) while pushing voluntary reductions and opposing any regulation that could “require” investment…
Funny how buying a new computer or building a new coal plant is good/necessary investment/creates jobs, but money spent reducing air/water pollution is always (and only) a cost/tax/job destroyer.
January 20th, 2008 at 5:55 pm
Disdaniel, I just read your post right after Lou’s. Both refer to the willingness to spend money, and you make a good point about reducing pollution, kind of like Lou’s on making small changes. The changes like cutting waste, which would reduce pollution, are also linked. Why is it that we all want to continue the same old habits when we could just promote conservation and come out way, way ahead and buy some time for what Lou identifies as “Type 2″ changes? A recent article in the Tulsa World, which I could not find just now, emphasized the waste of motor fuels during traffic jams. (Now, in Okesa, OK we do not have traffic jams, so I never thought about that one. If you look at most regular maps, you can find Okesa, but not the roads. What a place to be. Invite your friends and nobody shows up - they can’t find the place!) I think the article referred to about 10% reduction in commuting fuels if we could eliminate the traffic jams. There are myriad things we could do, but the great unwashed public wants to leave that to everybody else.
January 21st, 2008 at 3:06 am
Just an observation on traffic flow - The last time I drove in Sydney Australia I noticed that most drivers kept to 15 to 20kmph faster than designated speed limits wherever possible, but the traffic lights appeared to be coordinated for traffic that didn’t exceed speed limits. The result was a lot of vehicles accelerating hard, reaching a red light, stopping, only to accelerate again. Me, being a bloke from the bush, drove at the speed limit and - if not held up by stopped speeders - cruised through coordinated green lights. Are that many drivers that blind to the downside of their desire to hurry? I have to say that most Sydney drivers definitely don’t see what was glaring to someone from elsewhere. I suspect they were too busy cursing that out of town idiot who drove so slowly to notice.
I suppose it’s a dilemma for traffic controllers - to coordinate the flow of traffic for drivers who habitually exceed the speed limit or hope somehow to educate them to the advantages of travelling at safe legal speeds. But I doubt that it’s fuel economy on the minds of those drivers. Attempts to keep traffic to the speed limit seem not to be working and the technological options that could do so would be unpopular with drivers (also known as voters). The power of the relevant lobby orgs in driving related areas is not to be underestimated - just check out roadwork budgets.
So, could some system of alerting drivers to the best speed to get smooth traffic flow (dynamic speed limits/speed advisories?) be initiated? Driver education seems to come hard up against ingrained bad driving habits.
January 21st, 2008 at 8:47 am
Great idea there, Ken. I have the same problem as you, but I live in the hills. The nearest signal light to me is over twelve miles. Some of the simple solutions are not apparent to a lot of us, since we do not see them frequently enough to realize the problem exists. These are the type of programs which could be dealt with via public education and information, but the habits are so ingrained in those people we might think of as offenders, economics will have to dictate their actions. When it costs too much, they will remember to change their habits.
Your last sentence brings to mind a Listserv (?) called Fostering Sustainable Behavior, a site related to Community Based Social Marketing which has a vast store of info on promoting social change. Sorry I do not have a direct link but Googled it the last time I went to the site.
January 21st, 2008 at 10:45 am
Hypothetically, if all the moratoria on U.S. coastal drilling were lifted, how would that impact oil supply?
What nubmers do you prefer to use?
January 21st, 2008 at 10:46 am
Oops. For those who prefer “numbers” to “nubmers”, feel free to use the former.
January 21st, 2008 at 10:48 am
Also, to what extent could the discovery of large new gas fields exert downward pressure on oil prices?
January 21st, 2008 at 10:57 am
This whole area of what I call logistics–changing traffic light sequences, altering traffic flows, etc., to reduce fuel consumption–is yet another example of both untapped conservation opportunities as well as a way in which ‘puters and the net will come into play as oil continues to rise in price in the coming years.
Remember that story that made the rounds recently about UPS altering their delivery routes to minimize left-hand turns, because it saved them fuel? That’s a good example of sub-infrastructure-change logistics–each company can do that without any change being made to the traffic lights, lanes, etc. It’s also a good example of the middle-out change that I’m always talking about, in which companies or other large organizations make changes largely or entirely for narrow, economic reasons that wind up benefiting them and everyone.
January 21st, 2008 at 11:19 am
The coastal areas will be opened to exploitation, in my opinion. I can’t imagine that a near-term peak could lead to anything but that outcome, so we’ll definitely find out exactly what effect this will have as we live through it.
In general, I would expect to see no new oil from such source for years after those areas were opened up–offshore, and especially deep water, exploration and extraction is expensive and difficult, so it would take that long for the “right” sites to be found, rigs to be built, and drilling to begin. For example, the Jack2 find in the Gulf of Mexico that was all over the news in Sept. 2006 supposedly won’t reach full production for another five or six years.
The amount of oil production we get (plus the actual cost/barrel), would likely be lower (and higher) than consumers would prefer. My guess (based on nothing but a hunch) is that the new oil coming online in 2020 would only serve to slow the rate of decline of world production, and not reverse it. All the projections I’ve seen for Jack2, for example, say that it will max out at about 1 million barrels/day. Bring several such (very expensive) sites online by 2020, and we’re talking about a lifeline, not reason to fire up the cheap oil party again.
I’m not sure if major NG finds would have much effect on the price of oil. Oil is heavily used for transportation, an area where NG has very little presence, worldwide, so there would be virtually no substitution effect. (Compressed NG for transportation seems to be all the rage in India and Utah(!?).)
January 21st, 2008 at 10:37 pm
Woodchuck in comment #4 asks “Why is it that we all want to continue the same old habits when we could just promote conservation”
I was tangentially responding to the point by Lou (and your comment #1) about the big bad wolves in the Oil field (aka China and India. OF COURSE WE NEED TO PROMOTE CONSERVATION (although I prefer to call it increasing energy efficiency)…it is by far the cheapest solution available…I do this relentlessly in person, but energy efficiency alone is not enough. The pressures of growth (economic and population) appear to be inexorable especially in the global context.