Peak Oil is You
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Page added on September 15, 2014
America: You’ve got three more years to drive normally
Three more years? That’s pretty scary! Surely there must be a mistake in that headline.
First in a series
Is it possible that average Americans could have a hard time driving only three years from now? Preposterous, to say the very least! Three more years to drive would be awful scary if it were true. Fortunately, it can’t be true because the USA has been racing ahead, drilling like crazy, with the result that we are now the world’s third biggest oil producer, just behind Russia and Saudi Arabia.
As everyone who follows the news has heard by now, an innovative drilling technology called “fracking” has added about three million barrels a day of new “tight oil” production, from areas of the U.S. like the Bakken in North Dakota, and the Eagle Ford shale in Texas. Obama used to tell us how we need to break our petroleum addiction, but now he can’t bless new drilling enough. As a result, Americans are feeling better and driving more.
Case closed, right? Actually no.
The problem in a nutshell
This article will review the major problem the USA faces and the basic reasons why average American middle class folks can’t keep driving the way they have been accustomed to thinking is their birthright for almost the past century.
This first part begins a series that is partly concerned with geology, partly with the economics of energy, and partly with how the powers of self-interest and denial have blinded Americans to the precarious future of our national fossil fuel addiction.
The economic and geological evidence strongly suggests that the widely acclaimed new “fracking” technology may have bought us a few more years of grace in being able to keep on driving, but that this is about to end. With the end of cheap energy, and cheap oil in particular, the whole world is now facing an end to several centuries of rapid growth based on burning fossil fuels, as we progressed from burning wood to coal, and finally to oil and natural gas. The end of cheap oil means that the USA must now learn to accept a painful new transportation reality.
It all has to do with a peak in world oil production, about which I have written in the past. Shell geologist M. King Hubbert famously predicted in 1956 that U.S. oil production would peak about 1970, which it did, and then globally about 2000. As it happened, he was only off by about five years. Production of conventional oil — meaning cheap traditional oil — peaked globally in 2005.
Now the world is only able to expand global liquid fuel production by producing various costlier unconventional fuels.
Now the world is only able to expand global liquid fuel production by producing various costlier unconventional fuels. We are still mostly able to drive largely because of a big increase in unconventional oil production from sources such as the Canadian tar sands, heavy oil production, and deep water drilling. Especially in the last five years, the widespread use of “fracking,” or the hydrofracturing of petroleum source rock, has been used to yield “tight oil,” as well as natural gas.
Fracking has already added U.S. production of about 3 million barrels per day of expensive, low quality tight “oil,” and this addition is still increasing. This has been enough to allow most people to keep driving for now, although at a much higher fuel cost than people were used to paying a decade ago. In the last decade oil prices have roughly tripled. Only the recent tight oil from U.S. fracking has kept total world liquid fuel production rising.
New oil production already costs more than consumers can pay
The important new information to report is that we can now see the timing of a peak in global oil production much more clearly than even five years ago. Fracking has brought us a little slack in driving, but not much. As we can see, total U.S. driving has been in decline since about 2007, largely due to a rising fuel cost. A decline is total miles driven implies an even sharper decline in per capita driving, as indicated by the red line.
Chart from State Smart Transportation Initiative.
CLICK ON IMAGE TO ENLARGE.
Fracking production has temporarily held down driving costs, and has thus bought us a few more years of energy crisis denial; for now, driving is expensive but commonly affordable (our global warming denial can still go on for a little longer).
However, driving as usual will probably have to end with the end of the current fracking boom, as soon as its mounting profit losses kill new investment in production. The reason we can’t frack our way out of our oil addiction is that fracking really doesn’t pay off very well. The drilling costs are high compared to conventional oil production, since fracking involves a lot of lateral drilling, plus the great additional energy expense of breaking up a lot of underground rock using high pressure water.
You can produce oil at about $100 a barrel this way, but this tight oil commonly contains a lot of volatile but less valuable condensates like butane. Fracking wells also tend to mostly deplete in just a few years, much faster than old-fashioned conventional oil wells. Although the best fracking wells can still be profitable, the most profitable parts of the major U.S. fracking fields have already been drilled and produced since the low hanging fruit always gets picked first.
Today most energy companies are actually losing money on their oil and gas production.
Today most energy companies are actually losing money on their oil and gas production. This lack of profit, even at the current high price of $100 per barrel, is the way that the world of energy investment tells us that we are reaching peak oil. Peak oil is not exactly geological, although geology has a whole lot to do with it. Peak oil is actually reached when people can no longer afford what it costs to to produce it.
The official U.S. Energy Information Administration recently released a chart which shows that the top 127 oil and gas companies are currently losing money.
Chart from U.S. Dept. of Energy.
CLICK ON IMAGE TO ENLARGE.
The gap between the cost of producing oil and what our depressed global economy can bear is currently estimated to be about $10 a barrel in losses. This in itself is unsustainable but Gail Tverberg, a very perceptive non-governmental energy analyst, predicts that that this loss on new oil production will widen very rapidly to about $50 per barrel in only a few years, see Fig. 13 at this link.
When the profit on new oil production disappears, the slow depletion of the giant existing fields takes over. The world’s reserves of cheap conventional oil, largely still in the Middle East, are still profitable, but these massive reserves are in slow decline. Russia recently announced that its production has peaked and even the Saudis are suspected to have run out of spare production capacity.
Most people probably think that OPEC must be getting rich on its oil, but the reality is that “Oil prices are now too low for most OPEC countries to cover their spending needs.” Peak oil is sneaky because it has the hidden effect of slowly impoverishing oil customers by inhibiting economic growth in addition to directly raising fuel costs.
The bottom line
We have already reached the point that the average cost to drill for oil is more than our world of oil-starved and economically struggling customers can afford to pay. This is particularly the case when this increasingly costly fuel is used to power gas guzzlers that many people in the USA use to drive to work while earning minimum wage.
We have already seen the price of oil spike to $147 dollars a barrel in 2008, followed by a price collapse that brought the price back down to the low thirties a barrel, at least briefly in 2009. This extreme price volatility is by itself enough to scare away a lot of new drilling investment. Once you drill and frack a tight oil well, you must find a market for this expensive oil, even though the price might go down because of a weak economy. Now that most oil companies are losing money, even at $100 a barrel (at this time, global benchmark Brent is trading below $100), we can’t expect this production to increase.
No matter how the relative value of the dollar fluctuates, the amount of oil-based fuel that it can buy will almost certainly have to decrease as a trend.
No matter how the relative value of the dollar fluctuates, the amount of oil-based fuel that it can buy will almost certainly have to decrease as a trend, or perhaps more abruptly due to economic pressure that can be attributed to costly fuel. We are in a real bind when the global economy can’t recover without cheap oil, when at the same time the oil that global trade relies on for its recovery is no longer profitable to produce.
Looking ahead, oil is much more valuable as a feedstock for making petrochemicals than it is for powering inefficient cars. This means that the petrochemical industry will still be bidding a high price for the world’s last oil, long after our gasoline-powered cars go the way of the horse and buggy.
In Part 2 of “Three More Years of driving” we will further explore these same energy resource constraints, and will look at the role of finance capital, the Koch brothers, etc, in perpetuating our denial, which denial inhibits energy reform until there is a full blown crisis.
31 Comments on "America: You’ve got three more years to drive normally"
Makati1 on Mon, 15th Sep 2014 7:28 am
Optimists….
steve on Mon, 15th Sep 2014 8:06 am
It is amazing how you can tell Americans this and they will just look at you dumbfounded as if you have no idea…Americans are the dumbest people on the planet…The problem is…is that 3 years is very optimistic just looking a CAPEX alone shows it will be in 2 years or less…the other illusion is that this will only hurt the middle class and poor…the rich will be lucky to get out of this with their heads…it will happen in China, then Russia and then the U.s….
Davy on Mon, 15th Sep 2014 8:35 am
Short, there you go a mention of the magic 3 years you mention in your comment earlier.
Northwest Resident on Mon, 15th Sep 2014 9:40 am
The American economy is built on wasteful burning of fossil fuel. The economy is so integrated with excessively wasteful usage of fossil fuel that there is no way to carefully untangle it — it is a true Gordian knot. By far the most wasteful usage of fossil fuel in America is that of private transportation — the hundreds of millions of private passenger autos that burn many millions of gallons of gasoline daily sitting in traffic, in lines at McD’s, joy riding and making that daily 50+ mile round trip commutes to work in gas guzzling SUVs. This waste has to end — it must end. And it will end. But with the end of wasteful usage of fossil fuel and especially private transportation in America comes the end of the world as we know it, and all the chaos and mayhem and pain that implies. It isn’t going to be fun, but it has to happen, and I agree with the author of this article and others posting on this forum that “the end” is not very far away.
herrmeier on Mon, 15th Sep 2014 9:48 am
I was told driving is to end by Christmas 2008, then 2012, then 2015. Now it’s 2017?
Northwest Resident on Mon, 15th Sep 2014 9:52 am
herrmeier — Don’t worry. They’ll eventually be right. And that’s a scientifically accurate guarantee!
JuanP on Mon, 15th Sep 2014 9:52 am
I am praying we have three years, that’s what I need!
Davy on Mon, 15th Sep 2014 10:06 am
Me too Juan, I would give my left nut for 3 years! N/R you are so right when the driving stops America as we know it stops. Herr, 2017 may stretch into 2020 but Herr, do you really think we have much time beyond that? If you do you are ignoring some of the profound comments we are seeing on this board that cannot be ignored.
Northwest Resident on Mon, 15th Sep 2014 10:26 am
Davy, JuanP — Three years is an amazingly short time in the grand scheme of things. But it is an eternity when we take an honest appraisal of our current situation. Global conflicts cropping up like wildfires, large cracks forming along ethnic lines in Europe, fracking creeping up on its long-predicted peak and rapid descent, so much debt and money at the top that it is like an inverted pyramid that is set to topple at any moment. I wish for three years also, but three more years of BAU just seems like a near impossibility to me. If I were you, I would plan and prep for 2015 being the year when it all comes crashing down — that way, at least you won’t get caught short, anything more than that is gravy.
frankthetank on Mon, 15th Sep 2014 10:44 am
If I drove a Ford Explorer I would stop driving now. Junk junk junk junk junk. —I need more then 3 years..make it 5 and throw in a few years of a downward spiral…
Norm on Mon, 15th Sep 2014 10:52 am
Good article, explains what’s going on. Definitely what this website is for.
Kenz300 on Mon, 15th Sep 2014 11:20 am
Walk more, buy a bicycle or take mass transit.
———————–
E-Bike Sales Are Surging in Europe – NYTimes.com
http://www.nytimes.com/2014/08/19/business/e-bike-sales-are-surging-in-europe.html?emc=edit_th_20140819&nl=todaysheadlines&nlid=21372621
————————
Electric, flex-fuel, biofuel, hybrid, CNG, LNG and hydrogen fueled vehicles sales are rising every year.
It is time to end the oil monopoly on transportation fuels.
Plantagenet on Mon, 15th Sep 2014 11:24 am
Why do people imagine tight oil production will end in three years? The Bakken alone has 70 billion barrels. Sure it will be expensive to extract it, but the technology (fracking and horizontal drilling) is now well understood.
Plantagenet on Mon, 15th Sep 2014 11:25 am
Ooopsies—make that the PERMIAN has 70 billion bbls—the Bakken has a mere 7 billion barrels. Same idea though—-we will be producing from these fields for a decades. The conventional oil is about used up, but thank goodness the unconventional oil is there to prop things up.
Davy on Mon, 15th Sep 2014 11:41 am
Maybe we will get lucky NR. 3 years is less threatening than 2015 and easier to get my head around. Even with 8 years of serious prep work under my belt it is scary to think about. I hope you folks that know me as doomer Davy do not think I am optimistic for myself and looking forward to an ugly descent. I hope I am so far off the mark Planter and Noo can laugh me off this forum.
MSN fanboy on Mon, 15th Sep 2014 12:09 pm
LOL Davy, why not, all you need to do is survive the first six months after the social contract is destroyed by famine etc…
Its like the golden hour, the first six months will see mass chaos, followed by it fizziling out.
Then only the psychopaths and preppers will inherit the earth. Do yourself a favour, prep so you dont have to kill to survive.
steve on Mon, 15th Sep 2014 12:25 pm
Plant Saudi Arabia is going to be a net importer of oil soon and with declines around the world that is what is going to do us in. You have to look at the big picture and not just the Permian basin….Oh and I have a 1994 ford ranger that I have been keeping running for a long time…its just as good as toyota…it is how you take car of your equipment that matters…same for the human body…
steve on Mon, 15th Sep 2014 12:27 pm
I think we are already on the decent that is why Putin made his move…China is next….Look out Makati! Better start brushing up on your Mandarin!!
Northwest Resident on Mon, 15th Sep 2014 1:09 pm
Davy — No way am I prepared yet for 2015 either. One thing my farming food production effort taught me this year is that I do NOT have enough planter space to grow sufficient food to feed three people all year, much less the egg-laying chickens that a big part of my self-sufficiency is predicated on. I am now engaged in efforts to better prep the soil and that combined with getting my crops planted on time and in much better soil with much better nutrition mixed in should give me at least 3 – 4 times the production that I got this first year, but that still won’t be enough. But like MSN says (and I have said before), we only need to make it through the first six months to one year. If I can do that, then I can expand my growing operations into my front yard and into the front and back yards of my neighbors who are very unlikely to still be kickin’. It is going to be ugly and pure hell, one way or the other, that’s about the only guarantee we have I guess, whether it comes next year or in three years.
steve on Mon, 15th Sep 2014 1:27 pm
I think the government will have FEMA camps that you are to report to and the ones that don’t will be told that they have to fend for themselves. Many will put their faith in the government it will mean giving up a lot of liberties including your guns and a means to chart your own destiny…
noobtube on Mon, 15th Sep 2014 1:39 pm
I am looking for a massive emergency in 2016… the next Presidential election.
2015 seems like a non-event, to me. There may be a war, or crisis, here or there, and the crap oil will continue to flow, but BAU will continue as usual.
The bankers will do everything possible to push the collapse out until the next Presidential election, where the bankers will use the catastrophe as an excuse to bring in a full-blown nut (a Romney, a Palin, a Hagee).
That will basically be the end of the United States, as anyone recognizes it today.
The government will open the concentration camps (under some euphemism like relocation centers) under the guise of austerity, and to save the banks and the stock markets (the government cares about your investments).
The American idiots will accept it as long as the rest can get their NASCAR, football, Hollywood movies, sitcoms, and that mostly food at McDonalds and Safeway (it’s amazing there is a supermarket called WHOLE FOODS).
Cars will quickly become a luxury and people who can afford to drive them will be seen as moving targets by the desperately poor young.
And, that will just be the beginning of the hell that is coming.
Americans have a lot of debts to settle with the Earth and humanity.
herrmeier on Mon, 15th Sep 2014 1:48 pm
I’m looking forward to that noob. I already signed up with the local gang, we’re going to organize noob-hunting excursions. How fun will that be, I can already hear you squeak like a little piggy.
Northwest Resident on Mon, 15th Sep 2014 1:55 pm
steve — I have also speculated right along the same lines you just described. In the process of trying to imagine all possible scenarios, I have imagined a collapse scenario where a big armored military truck with supporting troops drives down my street, with armed and bulletproof-vested soldiers knocking on my door, handing out flyers that basically say: “water and electric and sewer service is being cut to your neighborhood. If you are unable to provide for your basic needs then assemble at x-location at x-time for relocation to an area where these services will be provided (fema camp or something close to it).” And of course the fine print: “No weapons of any type allowed. All bags and belongings will be searched.”
steve on Mon, 15th Sep 2014 2:06 pm
noobtube thanks for another dumb ass comment….what country do you believe is pure and holy? Even the Dali Lama described the invasion by China as karma that they had occurred over the centuries…go back a couple of your inbred generations and you will find a people that enslaved, murdered and slaughtered countless people and destroyed the earth around them… but Oh I forgot your shit does not stink…
Northwest Resident on Mon, 15th Sep 2014 2:11 pm
Uh-oh. I just cracked open my fortune cookie from my Chinese take-out lunch and here’s what the fortune says: Look with favor upon a bold new beginning.
(gulp…)
Davy on Mon, 15th Sep 2014 2:26 pm
N/R, getting superstitious?LOl.
N/R, you know and I know the most important preparation is mental. When you expect tough times it does not take away the pain when they come but you are not crying over the pain and wondering why it happened. IOW one tear is better than many tears.
J-Gav on Mon, 15th Sep 2014 3:52 pm
I stopped driving ‘normally’ (or otherwise) 4 years ago so don’t feel overly concerned by this article.
Bob Owens on Mon, 15th Sep 2014 6:57 pm
Folks, don’t sell the Gov’t or personal adaptation short. On a personal level, in a crisis people will move wholesale to bikes, scooters, motorcycles and reduce car driving by 50%. The Gov’t would take direct control over all oil and gas and would direct it to agriculture, police and DOD. These 2 effects will keep things going for decades, although we may not like it.
WhatNewYorkUsedToBe on Mon, 15th Sep 2014 9:41 pm
if you hold an iproduct in your hand and think back only a decade ago to the phones that were available then…. then you look at a combustion engine… think about HOW it is possible.. that no improvements/alternatives have cropped up to that?? how? how are we still using this technology and acting like it’s the only way?? because we’ve bought what we’ve been sold. GM had a cheap electric car a decade ago and it pulled it. just watch the magical appearance of alternatives to combustion engine appear in the next 3 years. because they certainly exist. and they will certainly be rolled out.
Davy on Tue, 16th Sep 2014 6:03 am
NY, like I told Bob (Owens) No time no money in a response to his comment of reducing fuel consumption and using AltE to transcend fuel shortages. The technology is there for the alternatives and the new engine designs but the time is not there, the scale is not there, and the money is not there to change out the fleet. Salvage will be the name of the game and changed lifestyles. There are complaints here about American SUV’s and large trucks. I agree when they are SOV’s but when they haul 25 people which large trucks can and more if you add a trailer. These trucks can be made very efficient. American trucks last forever because they are overbuilt. NY, pretty much what you see is what you will see soon with the vehicle fleet and most other large capital equipment. If the profound comments that have surfaced recently of the energy trap of finance compression and negative oil dynamics hold the equipment fleet will not change much. We are already seeing the neuvo-sub-prime auto bubble popping. We are going to see another round of automobile factory closings. The cycle is back and this time it will be with a vengeance. NY, time is the critical variable going forward. In a complex interconnect global world time has always been critical. Time is going to be a two edge sword. Not enough time and too much time. I just described how not enough time will bite us in the ass. The too much time is what is going to happen when descent begins and the just-in-time interconnected global system that relies on instant communication, quick distribution, and fast production slows down. “Or” when parts of this system just stop working. The current system just cannot organize properly with a slowdown in time or a system component that stops working. Just as BAU today is geared to growth it is also geared to fast. BAU gets both fast and growth through affordable efficient high quality energy intensity that is going through a capex, quality, and quantity compression. Chaos, dysfunction, irrational abandonment, entropic decay will show up in our system when things slow down. These system slowdowns will converge and influence more slowdowns and become self-reinforcing. The time to fight this entropic battle is now but there is not enough time. And if time where the only problem we are out of money with a debt based financial bubble dangerously overinflated. We are talking a huge new investment needed. We can’t even pay for what we got. We have a global system that is the equivalent of a US McMansion that a couple moves into but can’t afford to heat it or furnish it.
Stephen on Tue, 16th Sep 2014 10:50 pm
I think a reasonable approach would be to re-purpose the housing where people can walk or bike to work. Even if the trade-off was rich and poor people living next to each other in the same neighborhood, this would be worth the sacrifice. Then, allow people to choose their work hours. If this ended the bottlenecks of the 8AM and 5PM commute, this would add many more years of fuel for our cars [Demand Reduction], as not many of them would be used for transportation to work. A car could still be used for recreational driving (such as driving to visit friends on a weekend, shopping, or a night on the town).
The other way to reduce demand is to ban long distance trucking of products. Trains and Boats are far more fuel efficient. According to BNSF Railway, one freight train can take as many as 280 trucks off the road. Imagine more use of rail and less use of truck.
I would also tax imports from third world labor countries (the tax should be more than the cost of unionized labor to assemble that item in the USA) and give tax breaks for assembling goods close to the store they will be sold at, again reducing transport fuel usage.
I don’t think that opening concentration camps is the way to reduce the fuel usage. I think that making some changes to actually reduce it, even if they are not the most profitable for the bankers and corporations is the way to go.