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Tom Whipple: The peak oil crisis

Tom Whipple: The peak oil crisis thumbnail

I know that it is getting harder all the time to believe that there really is a “peak oil crisis” lurking out there waiting to engulf our civilization and create all sorts of havoc.  Nearly every day now oil and gasoline prices are falling. We are forever told that America is on the verge of independence from foreign energy sources; that the world has decades of whatever we are burning left to burn; and climate change is something for the great-great-grandchildren to worry about. In the last five months, oil prices have fallen 40 dollars a barrel so that we Americans now have about $800 million dollars more each day to spend on something other than oil products. To top it all off, those folks whose governments don’t like us very much — Russia, Iran, Venezuela for example — are really hurting as they slide into deeper economic troubles.

Leaving aside for the moment the possibility that some exotic and as yet not fully understood source of energy will emerge in the near future, saving us from climate change, reviving the global economy, and allowing us to fly further into space, the evidence is very strong that we are still on the verge of a crisis. In fact we probably are already in it and just don’t recognize it for what it is. It is a lot easier to blame troubles on high taxes or government regulation than to admit that shortages of natural resources are driving up prices and/or cutting growth.
It is now generally accepted by those actually studying the issue that production of “conventional oil,” which is what the early “peakists” were talking about 10 or 15 years ago, really did stop growing back in about 2005-2008. Since then official “oil” production numbers have continued to climb slowly, but included in the “official” numbers as put out by the US and international agencies is not all your grandfather’s oil. Instead the compilers of our oil statistics have learned to lump all sorts of liquid hydrocarbons of varying utility together and tell us that oil in the form of “all liquids” continues to grow. Now these hydrocarbons such as natural gas liquids, biofuels, tar sands, and shale oil have uses, but they either cost considerably more to produce than conventional oil, or do not have the same energy content as conventional oil. In at least one case, “refinery gains” which are sort of like whipping up a pint of cream into gallons of whipped cream, have no additional energy in their expanded state at all. They simply fill more barrels and let us pretend we have more energy to use than we actually do.
While the financial press continues to chatter endlessly about the technological breakthroughs that have brought us millions of barrels of new shale oil, sadly they have the basics of the story wrong. It is the high prices that “oil” has been selling for in the last ten years, not the decades-old fracking technology that has allowed very expensive shale oil to be produced that is new. Even with the recent $40 per barrel price decline, oil is still selling for four times what it was going for 12 or 13 years ago. It is the surge in prices to circa $100 a barrel has allowed very expensive oil such as that from fracked shale wells, the Canadian tar sands, and deep offshore oil wells to be produced; now with oil selling for closer to $70 a barrel the question is how long oil that is no longer economic to produce will keep being extracted. The other question is just how much of our oil supply is in danger of being mothballed until prices climb again as they surely will.
The reason for the current fall in prices is still in debate. The “oil” supply has continued to creep up in recent years, but starting last June the demand for $100+ oil was no longer there. While demand in the “rich” OECD countries has been down since the 2008 oil price spike, this year it seems to be the slowing Chinese economy and its reduced demand for raw materials that has been behind the sinking demand. Many of the developing economies have been growing and using more oil each year due to growing trade with the Chinese.
Someday conventional wisdom will conclude that oil at circa $100+ a barrel was simply too much to sustain high rates of economic growth and so the growth fell taking oil demand along with it. As nearly every action has a reactive feedback, we now are likely to see some sort of economic revival in those countries that have had to import a large share of their energy during the time of higher prices. Conversely the many states that have benefited from having large quantities of excess oil to export will not be doing so well for a while.
Where we are going from here is of course the question of the day. It currently looks as if oil prices will continue to fall a bit more. The Saudis say they expect $60 a barrel will be the equilibrium place. If this happens in the next few months, then we clearly will see a reduction in the drilling for high-cost to produce oil. In the case of fracked shale oil, which requires constant drilling just to  keep production even, this means we could see a reduction in output next year despite the protestations of many shale oil drillers that this will not happen.
Should US shale oil production actually fall next year, then global “all liquids” production could fall too.  A few astute analysts are already mulling whether just perhaps 2014 will someday be recognized as the all-time high for global oil production or in other words “peak oil.” It is still years too early to pronounce that an all-time peak in what we now call “all liquids” has occurred, but it is an interesting thought.  The situation may just be worse than it seems.

Falls Church News Press

19 Comments on "Tom Whipple: The peak oil crisis"

  1. Northwest Resident on Wed, 31st Dec 2014 3:53 pm 

    My strong suspicion is that we’ll hit “all liquids” peak next year, with crashing oil prices taking down CAPEX and new drilling in shale with it, along with pulling out of probably hundreds or thousands of existing wells where the cash flow really doesn’t work anymore. Recent articles posted here and elsewhere are already describing real-life oil service and fracking companies that have already pulled out the big axe and started hacking big cuts in employment and spending for future products. That will eventually hit GDP, state tax revenues and elsewhere, hard, and soon. The shock waves will rumble throughout the entire global economy which is already faltering and running on fumes, literally. The actual day/date of Peak Oil really won’t matter much at all in the long run. We’re close enough, and just like in horseshoes and hand grenades, that’s all that matters.

  2. steve on Wed, 31st Dec 2014 4:37 pm 

    Yes people have been so programed to believe that there is so much oil out there and it is everywhere that I often find myself double checking my facts and second guessing peak oil.

  3. Nony on Wed, 31st Dec 2014 5:25 pm 

    1. It’s funny to hear the peakers kvetch about the oil being too light. Years ago, they complained we wouldn’t find any more WTI and whatever we got would be heavy and sour.

    2. If the oil costs a lot to get, than it won’t be gotten. If it can be obtained at market price than it will. Peakers had every opportunity to consider how price would drive more extraction and they talked it down.


    Net, net: peakers are not true searching analysts, willing to admit error and to learn. But Malthusians for political reasons.

  4. Nony on Wed, 31st Dec 2014 5:26 pm 

    Peakers got their ASSES KICKED. TOD is dead, dead, dead.

  5. ghung on Wed, 31st Dec 2014 6:15 pm 

    Nony: “Peakers got their ASSES KICKED. TOD is dead, dead, dead.”

    Does broken-fucking-record sound familiar? Maybe in your case it’s a scratched CD that goes ddddddddddddddddt-ddddddddddddddt, over and over. Aspiring to your level of self-depreciation is a crappy way to waste a life, eh? Maybe you should get one.

  6. JuanP on Wed, 31st Dec 2014 6:44 pm 

    “While demand in the “rich” OECD countries has been down since the 2008 oil price spike, this year it seems to be the slowing Chinese economy and its reduced demand for raw materials that has been behind the sinking demand.”

    This is an excellent article all in all. I disagree with this meme that decreased Chinese oil demand is responsible for lower all prices. Chinese oil imports have been at record highs recently. The problem was that ZIRP and QE allowed the markets to go after oil that the market wouldn’t have produced otherwise leading to a period of supply exceeding demand, that’s all. QE’s tapering is rebalancing things. This was bound to happen if QE was slowed or interests raised.

    I like TW’s analyses when he sticks to oil. His political biases overwhelm his good judgment when he talks about Russia, Iran, etc., but he is a former CIA guy, so it is very understandable.

  7. Nony on Wed, 31st Dec 2014 7:31 pm 

    What if there was a secret reason why they get so much oil out of the Bakken? Mystery in the mancamp…

  8. Perk Earl on Wed, 31st Dec 2014 7:40 pm 

    “A few astute analysts are already mulling whether just perhaps 2014 will someday be recognized as the all-time high for global oil production or in other words “peak oil.” It is still years too early to pronounce that an all-time peak in what we now call “all liquids” has occurred, but it is an interesting thought. The situation may just be worse than it seems.”

    Or maybe a whole lot more tropical forest will be yanked to make room for more palm oil, that will get added to all oils as an equal amount of crude declines, giving the illusion the overall oil picture is at least steady when in fact available net energy continues to descend.

  9. Apneaman on Wed, 31st Dec 2014 8:05 pm 

    The only people who call them “man camps” are the one’s who don’t stay in them. Like sissy road salesmen who will be completely fucking helpless when it all falls apart.

  10. rockman on Wed, 31st Dec 2014 10:01 pm 

    Juan – “I disagree with this meme that decreased Chinese oil demand”. That surprised me also since Chinese petroleum consumption has increase y-o-y for the last 24 years. Their rate of increase may have slowed but not the total amount consumed. And if the Chinese follow the same pattern they did after the ’08 price collapse: in ’09 China increased consumption by 5% while the rest of the world decreased consumption. Yes: in 2009 China consumed 5% more $58/bbl oil then they consumed $98/bbl oil in 2008. And the rest of the world consumed less $58/bbl oil in 2009 then it did $98/bbl oil in 2008.

    Go figure, eh?

  11. Nony on Wed, 31st Dec 2014 10:54 pm 

    The argument is that it is less expectation of future demand. Current prices reflect not only current supply and demand but the market’s view of the future.

    I personally think there is something to that, but it’s overdone. The market had a huge correction based on shale. You can see the very direct impact of the OPEC meeting, which in some ways supports the view that OPEC had propped the price previously and not only that, speculators have to think about how much OPEC props up the price. I think of this independently, but then read later that Morris Adelman has same insight. I like him so much better than James Peaker (100 to stay) Hamilton.

  12. Norm on Thu, 1st Jan 2015 1:40 am 

    Its a good article. So there will be two peaks. CRUDE OIL honestly reported, already peaked in 2005. Now the liars fraudsters and swindlers (known as leaders, Congressmen, business owners, and so on) are creating a 2nd peak. The 2nd peak is made by accounting fraud of all-liquids, and is probably peaking NOW. Can they create a 3rd peak, by including old soda pop dumped behind 7-11 ? Most likely yes, they will try that also, to try for more BAU.

  13. Dave Thompson on Thu, 1st Jan 2015 3:43 am 

    “oil prices have fallen 40 dollars a barrel so that we Americans now have about $800 million dollars more each day to spend on something other than oil products.” The powers that be know what they are doing, couple more weeks and the price will ratchet back up just in time for summer.

  14. Dredd on Thu, 1st Jan 2015 6:53 am 

    The only way a finite resource such as oil, on a finite planet, can become infinite is through propaganda.” (Quotes)

  15. bobinget on Thu, 1st Jan 2015 8:17 am 

    With all due respect to Tom Whipple (a hero),
    It’s possible to oversimplify oil markets.

    Example: One I’ve never mentioned, India, the other China. 2014 elections.

    Remember, there are always winners and losers.

    Is China’s tempered growth (est 7.1%) in 2015 cause for concern?
    Has anyone looked in on India?
    India is projected to grow between 5.5 and 6.5% in
    2015. Wikipedia:
    ” Already containing 17.5% of the world’s population, India is projected to be the world’s most populous country by 2025, surpassing China, its population reaching 1.6 billion by 2050″

    Ignoring the obvious won’t make it go away.

    The remainder of this decade will be marked by
    battles over remaining oil reserves. China has a huge head-start but India’s new Rightist PM will I promise, be butting heads with China for a bumpy future.

  16. bobinget on Thu, 1st Jan 2015 8:27 am 

    Another ‘take-away’ from Tom Whipple.
    Undervalued because of all the Tight Oil Brew Ha Ha, are US and Canada’s legacy Light Oil E&P’s.

    Canadian, legacy light oil and gas oil companies have taken bigger (market) hits then most
    shale newcomers.

  17. penury on Thu, 1st Jan 2015 5:24 pm 

    I really do not know which side is right in the Peak Oil debate, but in my opinion it does not matter. From a strictly U.S. perspective peak affordable oil has already occurred for about 1/3 of the population, 48 million on EBT cards (not including children) 60 per cent of the working age population permanently unemployed, over 1 trillion dollars a year in Federal deficits, 7 wars being conducted, and more on the way. Car sales at all time highs (financed by sub-prime loans) miles driven continues a downward spiral. If this does not signal a predicament for fossil fuels than what will? Maybe Nony is correct and the world is awash in oil in two years we should be able to collect it in buckets out our front doors however it still will not make a difference. Ask yourself where are the jobs coming from for the unemployed? Economics will trump supply eventually. It does not matter how much liguids you can produce if you cannot sell them for a profit.

  18. Amvet on Fri, 2nd Jan 2015 2:41 am 

    The Chinese economy is not slowing. Only growth has slowed to, perhaps, seven percent. Most global oil is consumed by developing countries and demand in these countries is increasing. There is no global oil glut.

  19. Kenz300 on Fri, 2nd Jan 2015 9:29 am 

    The world will transition away from fossil fuels……

    Pope Francis’s edict on climate change will anger deniers and US churches | World news | The Guardian

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