Monday, July 28, 2008

Your Monthly Apocalypse: Peak Oil

The Peak Oil hypothesis, first formulated in the 1950s by M. King Hubbert, has acquired a steady following on the Internet during the past five years. The theory derives from a well-established feature of oil fields: all of them reach a "peak" of productivity at some point in their operational lifespans, and then begin to decline in output. There are ways to increase an older field's productivity (by pumping in pressurized water, for instance), but all of them increase the expense of extracting the petroleum. Eventually, the cost of pumping oil from the field exceeds its profitability, and the operators shut down the wells. This happens to all oilfields: Texas fields peaked in 1970, the Prudhoe Bay field in Alaska in 1988, the North Sea fields in 1999. The principal oilfields in Saudi Arabia may have peaked in 2006, but since the Saudi oil ministry doesn't share its survey data with outsiders, it's hard to tell.

Peak Oil is the theory that worldwide oil production has or soon will pass its peak, and that as a consequence the price of oil is going to be rising rapidly from now on - especially as growing demand from China and India intersects with an increasingly scarce supply. Some oil-industry analysts say that $200-300/barrel oil is only a few months or years away. The consequences of such a dramatic price increase are obvious to everyone: more expensive oil means more expensive food (because of rising fertilizer and diesel-fuel costs), consumer goods, gasoline, and heating oil for virtually everyone on the planet. Peak Oil enthusiasts think that these price increases will bring us more than mere hardship: many believe that $200-300 oil will cause a collapse of industrial civilization, ushering in a post-crash era that will either resemble The Road Warrior or Little House on the Prairie, depending on one's level of optimism. Some of the pessimists have begun stockpiling food and ammunition, to protect themselves both against the impending collapse of American agriculture and against the rampaging hordes of less-prudent survivors who hunger for the survivalists' canned peas. Others simply explore their fears by sampling the small but growing body of fiction devoted to post-Peak-Oil collapse scenarios.

Rising oil prices are certainly causing hardship for many people in the United States, where even the Amish are complaining about fuel costs, and the rising food prices associated with them are bringing even greater hardship to people in the developing world. I am cautiously optimistic, however, that world oil prices will level off and decline well before they cause the collapse of industrial civilization. First of all, while there is a limited supply of cheap, easily-accessible oil in the world, there is rather a lot of expensive oil - probably at least a century's supply - locked up in the form of superheavy crude, or oil sand, or in shale. This oil is currently expensive to extract, but as the price of oil rises, it will become profitable for companies to process and extract it. There is historic precedent for this prediction. In the 1960s, when oil exploration began on the Alaskan North Slope and in the North Sea, oil company executives argued that the price of oil would never rise high enough ("high enough," in this case, being $5/barrel) to make exploitation of any fields there profitable. They had a point: the North Sea has some of the ghastliest weather in the world, and Prudhoe Bay, Alaska is 800 miles from the nearest warm-water port. In the 1970s, however, the industrial world suffered two oil "shocks," and the price of oil rose from about $2/barrel in 1970 to $34/barrel by 1980. The seventeenfold increase in oil prices made oil companies (and governments) comfortable with multi-billion-dollar investments in North Sea drilling platforms and the Trans-Alaska Pipeline, and both developments ultimately contributed to an increase in overall supply. (Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power [New York, 1991], 569-574, 625-626, 665-670, 685.)

More recently, as oil prices have risen from about $40 (at the turn of the century) to nearly $150, oil companies have begun processing and selling oil that would have been considered nearly worthless 20 years ago, like Venezuelan superheavy (roughly the same consistency as Play-Doh) and Albertan oil-sand extract (which requires considerable heat to separate the oil from the sand). If oil rises into the $200-300 range, the extraction of oil from Rocky Mountain shale will probably become profitable, and Canada, which has ten times as much oil as Saudi Arabia locked into the Athabascan tar-sands basin, will become the next petroleum superpower. Eventually, these new producers will relieve some of the current pressure on world oil supplies.

Moreover, rising oil and oil-derivative prices generally lead to curtailment of demand, as consumers, inventors, and governments find ways to make more effective use of declining supply. This happened in the 1970s, when the U.S. government, for the first time, mandated corporate fuel-efficiency standards for all American automakers. The Big Three auto companies screamed bloody murder, but, under pressure from both Washington and from Japanese and European competitors, they complied with the new law. By the 1980s the average fuel-economy of the American automobile had risen from about 10 mpg into the high 20s. (Yergin, The Prize, 660-662.) These new fuel-efficiency standards, combined with power companies' abandonment of oil-fired power plants in favor of coal and natural gas, actually caused global oil consumption to drop in the 1980s. With the return of $10/barrel oil in the 1990s, American fuel economy standards dropped, but there's no particular reason why they couldn't rise again just as dramatically as they did in the 1970s and '80s. Several foreign car companies are leading the way to improved fuel efficiency: a German company has just developed a non-hybrid car, the Loremo, which (thanks to a diesel engine and radical streamlining) gets 120 mpg. Meanwhile, Japanese and German automakers are developing plug-in hybrids, available in 3-5 years, that should get 150-200 mpg. And, if higher automotive fuel efficiency doesn't bring prices down, one can stretch out the gasoline and diesel supply with biodiesel and ethanol brewed from algae.

I'm never quite comfortable dismissing a good disaster scenario, but I'm not particularly pessimistic about the world's long-term oil and energy outlook. Our current energy crisis will produce short-term hardship and a lot of stupid legislation, but ultimately we can work our way out of it through technological innovation and sheer greed - sorry, profit-seeking.

If I'm wrong, though, it's probably not a bad idea to keep those Laura Ingalls Wilder novels handy.

(The above photo, showing an oil refinery in Hampshire, England, is courtesy of



This piece is very timely and informative. I think that the "oil situation" is on everyone's minds these days. I wanted to give up my car I was so disgusted with gas prices, let alone the hazards to the environment. Then I heard that there was a huge increase in the need for mass transit as apparently many people could no longer afford long commutes to work and were riding the trains and buses but from what I understood at least here in Chicago, mass transit has not been able to keep up with this sudden wave of demand and has on order many more trains, while the bus routes were being cut and prices increased. Anyway, I forsee the "Little House on the Prairie" scenario or us all going electric, who knows it could be the best thing for us, and we had to be "pushed" into it. I heard a comedian say recently he had a hybrid or also known as "a mule". I thought that was pretty funny.
Of all the books about the oil crisis which would you recommend? Again your blogs are great! Chantal

Dave Nichols said...

My favorite book about oil crises, and aboout the industry generally, is Daniel Yergin's THE PRIZE. It's a huge tome, and Yergin's analysis stops with the First Gulf War, but it's well written and deeply researched, and helps put our current oil shock in better perspective.

On the Peak Oil hypothesis, most of my reading has been in weblogs and short articles, but I've heard good things about Paul Roberts' book THE END OF OIL.

I had heard that a number of cities, such as Pittsburgh, were having difficulty maintaining their mass-transit systems due to increased demand and tight public credit. One thing the federal government could do to help lower domestic oil consumption would be to provide emergency loans to cities like Chicago to subsidize or upgrade their mass-transit systems.

I like your joke about the mule.


Thanks -I'm definitely going to look those books up at the library. Great!

La Wahie Biotech do Brasil said...


University of Hawai'i Professor Pengchen "Patrick" Fu developed an innovative technology, to produce high amounts of ethanol with modified cyanobacterias, as a new feedstock for ethanol, without entering in conflict with the food and feed-production .

Fu has developed strains of cyanobacteria — one of the components of pond scum — that feed on atmospheric carbon dioxide, and produce ethanol as a waste product.

He has done it both in his laboratory under fluorescent light and with sunlight on the roof of his building. Sunlight works better, he said.

It has a lot of appeal and potential. Turning waste into something useful is a good thing. And the blue-green-algae needs only sun and wast- recycled from the sugar-cane-industry, to grow and to produce directly more and more ethanol. With this solution, the sugarcane-based ethanol-industry in Brazil and other tropical regions will get a second way, to produce more biocombustible for the worldmarket.

The technique may need adjusting to increase how much ethanol it yields, but it may be a new technology-challenge in the near future.

The process was patented by Fu and UH in January, but there's still plenty of work to do to bring it to a commercial level. The team of Fu foundet just the start-up LA WAHIE BIOTECH INC. with headquarter in Hawaii and branch-office in Brazil.


Fu figures his team is two to three years from being able to build a full-scale
ethanol plant, and they are looking for investors or industry-partners (jointventure).

He is fine-tuning his research to find different strains of blue-green algae that will produce even more ethanol, and that are more tolerant of high levels of ethanol. The system permits, to "harvest" continuously ethanol – using a membrane-system- and to pump than the blue-green-algae-solution in the Photo-Bio-Reactor again.

Fu started out in chemical engineering, and then began the study of biology. He has studied in China, Australia, Japan and the United States, and came to UH in 2002 after a stint as scientist for a private company in California.

He is working also with NASA on the potential of cyanobacteria in future lunar and Mars colonization, and is also proceeding to take his ethanol technology into the marketplace. A business plan using his system, under the name La Wahie Biotech, won third place — and a $5,000 award — in the Business Plan Competition at UH's Shidler College of Business.
Daniel Dean and Donavan Kealoha, both UH law and business students, are Fu's partners. So they are in the process of turning the business plan into an operating business.

The production of ethanol for fuel is one of the nation's and the world's major initiatives, partly because its production takes as much carbon out of the atmosphere as it dumps into the atmosphere. That's different from fossil fuels such as oil and coal, which take stored carbon out of the ground and release it into the atmosphere, for a net increase in greenhouse gas.
Most current and planned ethanol production methods depend on farming, and in the case of corn and sugar, take food crops and divert them into energy.

Fu said crop-based ethanol production is slow and resource-costly. He decided to work with cyanobacteria, some of which convert sunlight and carbon dioxide into their own food and release oxygen as a waste product.

Other scientists also are researching using cyanobacteria to make ethanol, using different strains, but Fu's technique is unique, he said. He inserted genetic material into one type of freshwater cyanobacterium, causing it to produce ethanol as its waste product. It works, and is an amazingly efficient system.

The technology is fairly simple. It involves a photobioreactor, which is a
fancy term for a clear glass or plastic container full of something alive, in which light promotes a biological reaction. Carbon dioxide gas is bubbled through the green mixture of water and cyanobacteria. The liquid is then passed through a specialized membrane that removes the
ethanol, allowing the water, nutrients and cyanobacteria to return to the

Solar energy drives the conversion of the carbon dioxide into ethanol. The partner of Prof. Fu in Brazil in the branch-office of La Wahie Biotech Inc. in Aracaju - Prof. Hans-Jürgen Franke - is developing a low-cost photo-bio-reactor-system. Prof. Franke want´s soon creat a pilot-project with Prof. Fu in Brazil.

The benefit over other techniques of producing ethanol is that this is simple and quick—taking days rather than the months required to grow crops that can be converted to ethanol.

La Wahie Biotech Inc. believes it can be done for significantly less than the cost of gasoline and also less than the cost of ethanol produced through conventional methods.

Also, this system is not a net producer of carbon dioxide: Carbon dioxide released into the environment when ethanol is burned has been withdrawn from the environment during ethanol production. To get the carbon dioxide it needs, the system could even pull the gas out of the emissions of power plants or other carbon dioxide producers. That would prevent carbon dioxide release into the atmosphere, where it has been implicated as a
major cause of global warming.
Honolulo – Hawaii/USA and Aracaju – Sergipe/Brasil - 15/09/2008

Prof. Pengcheng Fu – E-Mail:
Prof. Hans-Jürgen Franke – E-Mail: