If you haven’t heard of “peak oil” before, you’ll be hearing a lot more about it in the coming years, because it’s here. For the first time ever – EVER, in 2010, oil consumption exceeded production by over 5m barrels per day.
And one wonders why we have $100 oil and $4 gas.
While politicians blame speculators and Americans whine about gas prices, emerging economies are growing their middle class like gangbusters. They want what we have. And can you blame them? Americans, with only 5% of the Earth’s population, account for 25% of the planet’s energy consumption. So, what happens when the rest start to behave like the West? Peak Oil. That is, a scenario where we can no longer increase our output any more than the current rate – and the reason we have the current rate is because of the insatiable demand globally. The ONLY place on earth with excess capacity is in Saudi Arabia and well, you know how that OPEC cartel thing’s working out.
Chart – compliments of the Economist
(click to enlarge)
Implications of Peak Oil
The implications are obviously dire. While in just a few short decades we’ve essentially depleted a good deal of the material that took millennia to form (thanks to hoards of dead dinosaurs and plant matter; it’s amazing to contemplate just how much oil actually exists!), the alternatives aren’t desirable.
- Alternative Energy Sources – At current prices, solar, wind, thermal and other “renewables” just aren’t cost-effective. However, with the subsidization they’re seeing now and when comparing against $200 oil or higher, these technologies will seem viable in the future. They’re just not now. So, it pushes us further to the brink – of oil depletion. Natural gas has a future, but there are the usual environmental concerns there. And nuclear? Well, it’s cost-effective, but the political fallout from Japan has set nuclear ambitions back decades. There will be some tough policy decisions to be made for sure.
- Price of Oil – Peak oil means the end of cheap oil. Forever. While consumption continues to exceed production, that simply means that oil reserves dissipate and supply/demand becomes a household term. As supply can no longer satiate demand, one of two things happens – prices spike (which we already see at $100 oil, but we can see $150 again, $200 in the not-too-distant future), and the only way to then quell demand is another global recession. But each cycle will be worse and worse with the oil price low exceeding the old low, until we’re actually rejoicing when prices at the pump “drop to $8” instead of howling when they breach $4 like this past spring.
- The American Way of Life – It will be different. The 4th of July trip to the lake house, plane flights to Disney and the 50 mile commute so you could buy a bigger house in the exurbs? None of this will be affordable to the typical American family. Well, most of this isn’t affordable now; but even for upper middle class families, this is a tax. Higher energy costs will sap the budgets of all but the richest Americans. I’m in no position to predict what year this will happen, but we will likely see this in our lifetime.
In a perverse way, the industrial and operational miracle of high volume extraction in a cost-efficient manner has made oil so cheap and plentiful that we’ve burnt through most of it in just a few short generations.
So, enjoy it while it lasts! It is finite and it is dwindling. The future is here.
Does the Notion of Peak Oil Bother You?
What do You Think the Implications Are?