Realitychecker

Peak Oil - Are We There Yet?

An excellent article on peak oil. The IEA supply predictions that governments use to try and maintain their "business as usual approach", has until possibly this year, been based on flawed logic. It has been assumed supply will always increase to meet demand, so future supply predictions have simply been based on demand projections. With a finite resource such as oil, this assumption is only valid for a no growth extraction scenario that enables past demand/supply behaviour to be used for predicting future demand/supply behaviour. When extraction is actually growing at a constant rate each year, say 2-3 percent, the extraction profile is increasing in an exponential fashion, which causes the IEA approach to fail once the curve has starts to increase steeply.

The reality is that global oil production has been on an undulating plateau since c. 2005 and its consequences are likely to become increasingly unpleasant for us all. In the 1970's a 5% shortfall in supply caused the price of oil to almost quadruple initiating a serious recession. If we are now on a plateau, the resultant oil demand destruction due to recession will temporarily correct the supply/demand imbalance and reduce the price of oil. When the global economy starts to expand again the demand for oil will increase, but supply constraints will cause its price to start increasing again, which in turn precipitates another recession. This cycle will continue until the oil plateau ends with an irreversible decline in oil production, how long this plateau lasts is debatable, but it may not be that long.

If the world has failed to develop sustainable alternatives to oil when oil production eventually goes into decline we will all be in deep trouble. Fossil based energy, in particular oil, has enabled the global economy to expand allowing the population to grow to 6.7 billion, the resultant energy crunch will be disastrous without viable alternatives capable of providing equivalent amounts of energy suitable for electricity generation and feedstock’s for the petrochemical industry.

A combination of stupidity and greed by the banking sector combined with weak ineffectual regulation, allowed a housing bubble to develop that has now burst, causing the current financial crisis. A major concern should be that this banking crisis, combined with the economic consequences of an oil production plateau, will drain the global economy of the wealth needed to fund the massive investment needed to develop and construct alternative and sustainable sources of energy for power production, transport fuel, and feedstock’s for the chemical industry.

This link gives an excellent “crash course” in economic concepts and peak oil, www.chrismartenson.com.... In addition, the book “The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man” by David Strahan is well worth reading.