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By Pituophis
June 27, 2008

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My father rode a camel. I drive a car. My son flies a jet airplane. His son will ride a camel.

. . . . -- Saudi saying

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With oil hitting another all-time-high today, it seemed like a good time to review the Peak Oil Hypothesis.

I have always postulated and posted many times that I expect there to be a severe economic decline due to or coincident with rising energy prices and that that decline may very well lead to a temporary glut(s) of sorts that could lead to lower prices for crude and some petroleum products in the short term. By "short term" I mean anywhere from a few months to a few years.

But those "gluts" will be fake outs. The world is simply too far behind the curve. There WILL be a belated mad scramble to get alternative sources online (sources which all promise higher consumer energy costs), but it simply does not appear to be logistically possible to replace cheap oil with nuclear-wind-solar-hydro-tidal-geothermal in a time frame that will avoid severe transitional pain. And it appears likely, imo, that post cheap energy, the world will not be able to sustain 6 billion + people and that dieoffs will occur as they have over and over through the centuries when population demands exceed resource supplies. The simple fact that so many people in the world do not even consider the possibility of a post fossil energy world should set off alarm bells that the world will not properly prepare for that eventuality.

The huge industrial and technological revolution that has occurred over the last 150 years did not simply happen because humans become smarter overnight, it happened because people in Russia and Canada and the U.S. in the mid 1800s discovered that they could poke a hole in the ground in the right place and that this black stuff would bubble out that could be burned to produce CHEAP energy for all kinds of purposes. The idea that the human mind has "found a way" to overcome whatever obstacles are thrown in front of it is historically incorrect and is a mindset that has been fostered in oil rich nations which ignores the fact that almost all of the technological advances of the last 150 years have been made possible by this cheap and abundant and (what some would have you believe) infinite supply of oil.

We will NEVER use ALL of the oil in the world. BUT as the production curve declines, and as the population of the world continues to increase, particularly in Asia which year after year demands a larger and larger percentage of the world's energy, it will become increasingly difficult and then impossible to supply those needs. When you do the math, as many of the Peak Oil Casandras mentioned on this board have, you will see that NO combination of alternative sources currently imagined will be able to supply those energy needs.

What I foresee is a transition period between a densely populated world that depends almost entirely on fossil fuels, to a somewhat (to greatly) less populated world that slowly becomes less dependent on those sources though I expect that fossil fuels will continue to be used for...possibly centuries, to some extent, by those with access to supplies.

Just how painful the transitional period is depends on how forcefully the world attacks the problem. Right now, almost the entire emphasis (certainly as measured by U.S. government policy) is on securing the remaining supplies of fossil fuels and I expect that that dynamic will continue for some decades, likely resulting in some major Oil Wars, the first of which is being so incompetently fought today in Iraq (though some might argue that most of the wars of the 20th century were largely oil wars).

I think one of the reasons that so many people fail to see and why so many simply refuse to see the calamity that is upon us is due to the boy-who-cried-wolf syndrome. From Malthus to Ehrlich to Deffeyes we have been warned that the demands of population will exceed the supplies of resources and while these doomsayers have been proven right at regional levels the world has always "found a way" to avoid a major worldwide lack-of-resources disaster. But clearly the way that was found was cheap, abundant oil. The era of cheap, abundant energy is coming to an end. Malthus and Ehrlich and Deffeyes may not be wrong they may merely be early. Sort of like when Bill Fleckenstein shorted the Nasdaq in 1998.

More than any other contributor to the complacency symptomatic of the boy-who-cried-wolf syndrome was the Arab Oil Embargo of the 1970s. The Arab Oil Embargo led to what are still historically high oil prices and did indeed lead to an exploration and production frenzy which resulted in a glut and low prices, though that production frenzy clearly illuminated the fact that U.S. peak had occurred in 1971, exactly when Hubbert had predicted it would 15 years earlier. The U.S. peak and the peak in many other countries should be an eye-opening example to disbelievers. So many believe based on what seems to be pure "faith" that this time won't be any different, that humanity will find a way (as it always has?). But this time it IS different - this will not be a temporary phenomenon created by a market disruption, this will be a systemic change due to permanently declining supplies.

Many peak oil advocates say that peak is happening virtually NOW. I don't agree or disagree with those predictions - I will wait to see it in the rear view mirror but I am fairly convinced that peak will happen within the next decade. Is it possible that another mammoth field or two will be discovered that delays peak oil for a decade or two allowing us a smoother transition into a post-carbon world? Is it possible that the Saudi's really can significantly increase production? I suppose anything is possible but 90% of the experts say that is highly unlikely.

One has to have a lot of "faith" in humanity to believe that the human mind will find away to avoid the disaster that peak oil portends. Many have developed this faith in the western world, particularly in the U.S., based on the apparent infallibility that cheap oil has allowed over the last 150 years. But a more thorough examination of history reveals that over and over and over, throughout recorded time, the demands of subsets of the human population have exceeded supplies of natural resources and dieoffs and the disappearance of entire civilizations have occurred. In that sense, this time will not be any different, except that the disruption will be global in nature, and yes, at the end of it, humankind will survive to write about the End of the Oil Age in history books of the future.


. . . . . . . . . . . . -- originally posted October 8, 2005 (w. tx crude @ $60/barrel)
http://boards.fool.com/Message.asp?mid=23139021

The only thing that I see a little differently 2.8 years later is that because of some quantitative analyses I've seen by Loren Cobb and others I now believe that it is possible to get enough alternative energy sources online by 2030 or so for most of the world to avoid a Malthusian type disaster. But the next couple of decades will be interesting times.