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Tuesday, July 19, 2005

The Long, Long, Long, Long Emergency

I was recently pointed to an article titled "The Long Emergency", one of many articles that I've seen that began springing up many decades ago claiming that we were imminently running out of oil and that the coming declines in production would affect us profoundly, even catastrophically. None of the previous predictions of this ilk proved correct, but might this? First let's consider some of the statements in the article.
A few weeks ago, the price of oil ratcheted above fifty-five dollars a barrel, which is about twenty dollars a barrel more than a year ago. The next day, the oil story was buried on page six of the New York Times business section. Apparently, the price of oil is not considered significant news, even when it goes up five bucks a barrel in the span of ten days. That same day, the stock market shot up more than a hundred points because, CNN said, government data showed no signs of inflation. Note to clueless nation: Call planet Earth. [...]
Note to clueless author: try learning some basic fundamentals of economic statistics. At any one moment in time, whether within an inflationary or deflationary environment, prices of some products and services are going up, other prices are going down. Given that the vast majority of prices are stable, the rise in one commodity doesn't make much difference. Overall, people are paying more or less the same for the goods and services they procure.
It is no exaggeration to state that reliable supplies of cheap oil and natural gas underlie everything we identify as the necessities of modern life - not to mention all of its comforts and luxuries [...]
That depends, I suppose, on the exact definitions of "exaggeration", "cheap", "underlie", "necessity", and "modern life", but my subjective interpretation renders a strong false when reading this statement. Few people I know would consider the current price of $60+/bbl of oil particularly cheap, yet it looks to me that somehow modern life is going on just fine - necessities, comforts, luxuries, and all.
The few Americans who are even aware that there is a gathering global-energy predicament usually misunderstand the core of the argument. That argument states that we don't have to run out of oil to start having severe problems with industrial civilization and its dependent systems. We only have to slip over the all-time production peak and begin a slide down the arc of steady depletion.
It's a weak argument and shall be discussed far more below.
The term "global oil-production peak" means that a turning point will come when the world produces the most oil it will ever produce in a given year and, after that, yearly production will inexorably decline.
Looking forward forever, there's no doubt that there will be a year that has the largest global oil-production and for every year thereafter that peak, the total oil-production will be lower than the peak. That's a tautology. However, I find it unlikely that there will be a single peak. Since there is a significant delay in the oil production investment cycle, there will probably be a series of local maxima. Production may ebb, oil prices rise as a result, investment increases, then, after a delay, production increases and hits a new high.

Secondly, the inexorable decline may be due to many factors, not all of which are negative. New technology may become available that enables cost effective extraction of energy from sources other than petroleum, some of which we can't even imagine today (nobody imagined photovoltaic solar cells 100 years ago, for example).
Now we are faced with the global oil-production peak. The best estimates of when this will actually happen have been somewhere between now and 2010. In 2004, however, after demand from burgeoning China and India shot up, and revelations that Shell Oil wildly misstated its reserves, and Saudi Arabia proved incapable of goosing up its production despite promises to do so, the most knowledgeable experts revised their predictions and now concur that 2005 is apt to be the year of all-time global peak production.
Oh Really? I wonder if any of these knowledgeable experts (or anyone else for that matter) would like to take the opposite side of the following bet: I'll bet $1,000 that the global oil-production peak of at least one year during the period 2006 through 2015 exceeds the global oil-production of the year 2005. And I'll give 2 to 1 odds to boot. Any takers?

Why am I so confident? If oil is anywhere near as important as the author claims, and the price threatens to stay anywhere near the $60/bbl that it's currently at, or even rise from here, huge investments will be made to extract more expensive oil and that will push production up.

What would be the peak production at $30/bbl is different than the peak production at $60/bbl and is different than the peak production at $100/bbl. While I could believe that if the price of oil were frozen forever at $30/bbl, we might have already passed peak production. But each dollar increase in the price of a barrel of oil represents an addition $27 billion of revenue to the oil industry which is a substantial incentive to go and extract and deliver more oil to the global oil markets. For example, there are trillions of barrels of oil shale, and "[if] the oil price were to stay permanently at over forty dollars a barrel (with no chance of declining, which could be the case if oil shale were to be exploited on a large enough scale), then companies would exploit oil shale."

It will change everything about how we live. [...]

This is going to be a permanent energy crisis, and these energy problems will synergize with the disruptions of climate change, epidemic disease and population overshoot to produce higher orders of trouble.

We will have to accommodate ourselves to fundamentally changed conditions.

We live fundamentally differently than we lived 50 years ago. We will live fundamentally differently 50 years hence. Accommodating ourselves to fundamentally changed conditions wasn't a crisis over the last 50 years. There's no reason that adapting to change going forward will be a crisis either. Heck, we'll probably not even really notice it. Have you noticed how much things have changed in the last 50 years as they changed?

No combination of alternative fuels will allow us to run American life the way we have been used to running it, or even a substantial fraction of it. [...]

"No combination of alternative" energy technologies known today "will allow us to run American life"... So what? As oil prices increase due to higher extraction costs, new technologies will be invented, existing technologies refined, and eventually, we will use less oil, and maybe even be better off for it. The author implies that catastrophe is imminent. It's not. Don't believe me? Then take the bet defined above. There's adequate time to adapt to new energy technologies.

Much of the rest of the article then predicts the dire state of the world based on the premises that oil production will peak soon and that the following decline will be catastrophic. Since I don't agree with the premises, I also don't agree with the conclusions. The world may fall apart but I doubt it will be because of limitations in oil production.

As the former
Saudi Arabian oil minister Sheikh Zaki Yamani said, "The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil".

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