Peak Oil: Still Headed for a Train Wreck

I am neither an alarmist nor a conspiracy theorist, but I have been extremely concerned about Peak Oil since long before I took on the VIX a pet project. Now that I occasionally find myself as an unofficial source of all things VIX and volatility, it seems I am also perpetually on the lookout for storm clouds on the horizon.

Where will the next big threat come from? Commercial real estate? Failed Treasury auctions? The dollar? Pakistan?

According to The Guardian, a sure bet is Peak Oil. In Key Oil Figures Were Distorted by U.S. Pressure, Says Whistleblower, Terry Macalister reports that the International Energy Agency (IEA) has been deliberately publishing overly optimistic oil production capacity data, largely due to arm twisting by the U.S. government. Macalister quotes two different unnamed IEA sources, including one who assesses the situation as follows:

“The IEA in 2005 was predicting oil supplies could rise as high as 120 million barrels a day by 2030 although it was forced to reduce this gradually to 116 million and then 105 million last year. The 120 million figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this. Many inside the organization believe that maintaining oil supplies at even 90 million to 95 million barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources.”

A second IEA source attributes much of the unrealistic data to a culture in which it was “imperative not to anger the Americans.” Speaking about the current state of oil production, he added, “We have [already] entered the 'peak oil' zone. I think that the situation is really bad.”

Now, I take everything I read with a grain of salt, but I think the important question here is whether the quotes from above are the complete truth or merely mostly truthful. If I were looking to predict future disaster scenarios, Peak Oil would be near the top of my list. The question here is not if, but when – and what sort of ugly political and economic consequences will be intertwined with Peak Oil.

The financial crisis may have temporarily postponed the Peak Oil train wreck, but a slow-motion train wreck is hardly an improvement – and often turns out to be more painful to watch.

Comments

[La Marque:]

You got this one right! Americans are going to have to get used to peak oil. We have already passed it economically; it only gets worse.

Nov 10 10:47 AM

[MarkitWacha:]

Pickens plan is meant to address this, but it will still be painful.

We might have a chance if synthetic liquid fuel can be mass produced via a Fisher-Tropsch reaction. That will still require billions in investment. It's more likely that natural gas will be extracted to its limits first.

Small decreases/increases in demand can mean large price movements. In 1980, a 5% decrease in supply meant a 100% increase in price. The reverse may also hold true. Ford's next generation of direct injected engines are extraordinary. >100 HP from a 1.4 L engine.

Nov 10 11:27 AM

[ryanclarke:]

The Fisher-Tropsch reaction requires MUCH more energy to produce synthetic oil from other hyrocarbon sources such as coal than what the final synthetic oil gives off when it is BURNED. The Germans were forced to give this is a try during WWII ... they didn't get much oil from it as planned ... which is why the German tanks failed ... because they ran out of diesel ... during the Battle of the Buldge.

The quickest solution to the problem is to restructure U.S. society so that an individual car is no longer needed for everyday purposes in the society, that is, there would not be an "energy problem" in America if gasoline demand dropped from 9 MBPD to 3 MBPD and average Joe had no problem getting grocercies or clothes from a store at a reasonable price. Euro society embraced MASS TRANSIT many years ago and this is one reason the EURO currency is gaining ... Euro society can function with super high diesel pump prices ... much longer than American soceity can function with super high gasoline prices.


On Nov 10 11:27 AM MarkitWacha wrote:

> Pickens plan is meant to address this, but it will still be painful.
>
>
> We might have a chance if synthetic liquid fuel can be mass produced
> via a Fisher-Tropsch reaction. That will still require billions in
> investment. It's more likely that natural gas will be extracted to
> its limits first.
>
> Small decreases/increases in demand can mean large price movements.
> In 1980, a 5% decrease in supply meant a 100% increase in price.
> The reverse may also hold true. Ford's next generation of direct
> injected engines are extraordinary. >100 HP from a 1.4 L engine.

Nov 10 12:54 PM

[Davewmart:]

Oil consumption is increasing fastest of all in the oil producers, which will rapidly leave less and less for export.
This, together with demand from the Bric countires, mean that the West will very rapidly have to adapt to having much less oil.
Here is Jeffrey J. Brown and Samuel Foucher's analysis of oil trends for the fundamentals of the situation:
www.energybulletin.net...

More oil has been used than discovered and developed every year since the 60's.

The bottom line is that we have hit a brick wall, and as well as reforming the financial sector we have to swap to new eenrgy sources before we have any chance of resuming growth.

Nov 10 02:34 PM

[FIFOkid:]

I can count 5 MB of current idled spare capacity right now without even adding another 5 MB addition from Iraq and this addition excludes the finds off the Santos Basin. So the IEA's105 MB I think is a realistic all time peak provided economic activity is in healthy shape.

Nov 10 02:59 PM

[OilFinder:]

Oops, sorry for the duplicate post.

Nov 10 11:32 PM

[HunterGVL:]

Yes, we continue to expand production and bring more barrels online yearly, so far. But at what cost? Just looking at availability without considering cost is not practical. Who cares if we find a 100 Billion Barrel oil field at the bottom of the Mariannas Trench. Anybody got a rig that will get 7 miles deep? But a little closer to home, the Brazilian find is at 10,000 feet and only the submersibles can get at it and last time I checked, RIG was getting $555,000 a day to drill it. The problem that defines peak oil is not merely the ability to produce 105 million b/d, but to do it without gasoline costing $15 dollars a gallon (U.S.). Maybe the term just needs to be modified to increase understanding: Cheap Peak Oil has indeed arrived for most producers, with 2015 likely, globally. Once we get to $300 dollar oil, we can drop the 'cheap' designator and start talking about REALLY expensive oil and simply, "Peak Oil."

Nov 11 01:08 AM

[FIFOkid:]

Now we are changing the true definition of peak oil here. I don't have any disagreement the costs for deepwater and for that matter any exploration is going to be expensive but would the costs been that exorbitant if our currency had the same purchasing power from the 1960s

I hate to say but the strength of our currency is going to be a larger determinate in the price of all commodities moving forward.

Nov 11 07:16 AM

[ain't no fo...:]

Well then get used to being very poor, because Bernanke has one goal, and one goal only - to destroy the dollar under the misguided assumption that he can inflate away trillions of $$ of bad debt we owe foreigners ( we are just getting STARTED on issuing debt), to inflate assets so as to keep this deflationary spiral we are in from taking us down the crapper (too late, the train left the station already), and to prop up stocks in order to make Americans think the economy must be doing swell so they will do what they used to do best - shop til they dropped (with what... colored beads?).

Only none of that is gonna work... my money says we are on the cusp of a deflationary spiral that will devastate the US economy and paradoxically, keep asset prices like oil at near record highs.

Add in a little war here, a CAT 5 in the wrong part of the Gulf there, and before you know it...


On Nov 11 07:16 AM FIFOkid wrote:

> Now we are changing the true definition of peak oil here. I don't
> have any disagreement the costs for deepwater and for that matter
> any exploration is going to be expensive but would the costs been
> that exorbitant if our currency had the same purchasing power from
> the 1960s
>
> I hate to say but the strength of our currency is going to be a larger
> determinate in the price of all commodities moving forward.

Nov 11 08:10 AM

[Steven Ward:]

The CEO of Total has said for 2 years that the oil production at its peak is 90 to 95 mboed world wide.
Our currency is headed for the crapper and this will increase price and of course every politician likes to proclaim that solar and wind energy will make us fuel independent. I still want to know how solar and wind (Pickens' plan withstanding) will put fuel in our gas tanks.
And the Obama Admin seems to be whistling past the energy graveyard and Boxer just got out of her committee a cap and trade bill that is insane.
I think we are doing just fine--for a train wreck.

Nov 11 11:26 AM

[OilFinder:]

Where did my post(s) go?

Nov 11 12:36 PM

[toobad41:]

We should not be too surprised at the what comes out of any agency such as the IEA. It has always been known in the petroleum industry that estimated ultimate recovery oil reserves are just pie-in-sky estimates and they change almost on a daily basis. The same can be said about the IEA. The numbers they have in their data base are based largely on what industry or countries provide. At stake here is a much larger issue. Western civilization is totally dependent on petroleum and nothing else is on the horizon even remotely approaches this resource. Many people, myself included, say that we will eventually revert back to simpler life in a society that existed 100 years ago. And perhaps that is a good thing, not a bad thing.

Nov 11 11:05 PM

[GeoUSA:]

Europe has shown more intelligence in preparing their people for expensive and scarce energy. Americans in general appear to lack long term awareness and planning. I am not in the military, but it does seem to me the American military DOES think and plan long term. It is my hope that the US government also plans long term even if our political structure makes it appear otherwise.

The introduction of the microprocessor, Internet, and related communication networks was well-managed and provides technology that will be very important in a transition away from plentiful and cheap petrol. I'm not certain of the progress with nano research, but it should provide breakthrough materials to further aid the transition.

I believe the greatest hope for the world, and particularly for the American economy to provide something the rest of the world needs lies at the National Ignition Facility at Lawrence Livermore National Laboratory. Under construction for 12 years, it is now complete and was dedicated in May of this year with the first large scale experiments in June. 2010 will be a very important year for the largest and best hope so far for producing cheap fusion energy. Our Sun and millions of other stars provide a strong proof of concept.

Like Mr. Luby, I am not an alarmist or conspiracy theorist. It is my great hope that mankind is not as stupid as we often appear.

en.wikipedia.org/wiki/...

Nov 25 09:30 AM