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 oil 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 FreeFoto.com.)