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What Ever Happened to Peak Oil?

General Ideas

In 1957, Tulsa celebrated Oklahoma’s golden anniversary of statehood by placing in a concrete vault under the county courthouse a host of mid-20th century artifacts, including a 16mm movie, a six-pack of Schlitz better, and a woman’s purse with bobby pins, lipstick, and a pack of cigarettes that retailed for 50 cents a pack.

The beer was packed into the trunk of the time capsule’s centerpiece: a spanking new 1957 Plymouth Belvedere Sport Coupe. It was all to be unearthed in another 50 years, so the organizers included a commodity they figured might not be around in 2007: five quarts of motor oil and 10 gallons of gasoline.

For more than two generations, schoolchildren were assured by their science teachers, elected officials, and the media that the world’s supply of oil—the great fuel of America’s car culture, not to mention U.S. economic prosperity—was finite and would soon be exhausted.

This perception that we would run out of oil, and sooner rather than later, became more than a theory, one that went by the name “peak oil.” It became a kind of catechism. It was included in the prayer books of the environmental movement and incorporated into the legislative history and language of U.S. federal energy policy. It became an underlying basis for everything from Jimmy Carter’s admonition to turn down the nation’s thermostats, the enactment of 55-mile-per-hour speed limits, and federal mandates on gasoline standards for cars and trucks.

Today, the question is how policymakers should one react when the conventional wisdom is proven so spectacularly wrong, as is the case here.

It wasn’t that the peak-oil hypothesis defied common sense. And it wasn’t only environmental doomsayers making the claim. That gold-and-white Plymouth sports car was in a time capsule in the energy-friendly oil-patch city of Tulsa-by-God-Oklahoma. The closer one got to the oil industry, the more talk one heard of peak oil.

The theory itself was promulgated and then popularized by M. King Hubbert, a Shell Oil Co. geologist who predicted in a 1956 scientific paper that U.S. oil production would peak in the early 1970s at 10 million barrels a day—and then begin a long inexorable decline. It came to be called “Hubbert’s peak” and eventually “peak oil.” When U.S. oil output did peak for a while in the early 1970s, this seemed confirmation of his theory. Americans stuck in long lines at the gas station during OPEC-induced shortages were in no mood to argue.

Later, Hubbert extrapolated the theory globally, arguing that worldwide peak oil production would occur in the 1990s. With help from doomsday futurists such as Paul Ehrlich, citing additional work by Hubbert, “peak oil” entered the non-energy sector lexicon as a shorthand for the inevitable exhaustion of the world’s natural resources, most especially fossil fuels.

But an unexpected development occurred in the 21st century, a century that the naysayers had said would be one with scarce crude oil resources: The supply instead exploded.

The apocalyptic future promised by the “peak oilers” simply did not come to pass. In 2004 the world produced nearly 84 million barrels of oil a day; by the second half of 2016, roughly 97 million barrels of oil is being produced daily, with more on the way as OPEC, Russian and U.S. oil producers do battle for market share with prices at the gasoline pump more than 40 percent lower than they were two years ago.

In 2007, the U.S. produced 5.1 million barrels of crude a day, while Oklahoma produced 175,000 barrels a day. A short eight years later, the U.S. produced 9.4 million barrels a day and Oklahoma had more than doubled its production to 432,000 barrels a day.

“Welcome to the world beyond Hubbert’s peak,” wrote Kenneth S. Deffeyes, a Princeton geologist who was a Shell Oil colleague of King Hubbert—and someone who had believed in peak oil himself.

Yet, old creeds die hard. Mason Inman, Hubbert’s biographer, believes that peak oil’s originator, who died in 1989, would still not concede that he was wrong. He was hardly alone. During the period of 2007-2008, many in the oil-trading community in New York and London became convinced that crude oil was entering a permanent period of shortage, and bid up prices well into the triple digits.

A decade later, a new generation of analysts is putting a fork in the peak-oil theory and calling it done, at least for the foreseeable future. Vast amounts of petroleum – perhaps trillions of barrels worldwide – have been unlocked from shale basins in North Dakota, Texas and elsewhere in North America, thanks to technological innovation. The combination of fast computers, 3D seismic surveys and especially hydraulic fracturing have enabled engineers to find heavily laden source rock thousands of feet underground. Drillers then send high-pressure water to break apart these oil-laden shale rock deposits, releasing oil and natural gas to the surface.

Earlier this month, analysts with asset manager Sanford C. Bernstein reported that the search term “peak oil” has fallen to near zero hits on Google after spiking for much of the past decade, and had even been surpassed by such search terms as “too much oil,” a far cry from the summer of 2008, when prices peaked above $140 a barrel.

“As interest in shale-led supply peaks, then naturally interest in the old concern of ‘Peak Oil’ has all but disappeared after the surge in focus on this during the mid-2000s,” wrote analysts Oswald Clint and Mark Tabrett in a note to Bernstein clients.

The Obama administration, while generally critical of the oil industry’s impact on the environment, never fully embraced the peak-oil theory, even though the president makes no secret of his desire to shift the U.S. economy away from fossil fuel dependence.

The closest Obama came to outright support was during a speech in Florida at the start of his re-election campaign in 2011 when he argued that “we can’t just drill our way to lower gas prices.” His statement happened at exactly the time when unconventional oil production began adding roughly 1 million barrels a day of growth each year through 2014, which in turn helped cause the decline of prices to their current levels.

By 2005, a spate of books such as “The Party’s Over” by Richard Heinberg and “Twilight in the Desert” by Matthew Simmons recycled the doctrine of scarcity. These authors gave credit to their patron saint Hubbert, whose wisdom they touted because his original estimate of U.S. oil production peaking in 1970 at 10 million barrels a day seemed so prescient. To these true believers, the high prices after 2004 were evidence of peak oil’s accuracy. Deffeyes actually picked the exact day – Thanksgiving 2005 – that global oil production would start its terminal decline.

One factor the peak-oil adherents never seemed to consider was that the supply of oil, like many commodities, was directly influenced by price—and that drillers and investors previously not searching for it would return to exploration if market prices became high enough.

“The biggest supporters of Peak Oil almost all are petroleum geologists; almost none of them are economists,” said Ronald Bailey, an author and science correspondent with Reason magazine who has written extensively on climate and energy. “They really don’t understand markets.”

One of the most prominent peak-oil critics, longtime energy analyst and author Daniel Yergin, called the price spike of the early 21st century the fifth “peak oil” panic since the late 1800s. He anticipated that prices would again fall as soon as enough investment began to target shale deposits in the U.S.

Perhaps the advent of hydraulic fracturing has upended the entire paradigm of oil development, possibly for good. Indeed, if markets were the only factor, that might be the case. But energy policy involves politics, too, and fracking has become a target of environmentalists, who have blocked it in France and Germany, and are seeking to do the same in many parts of the United States.

What has happened is that conservationists’ arguments have changed, but not their goals. For decades, environmentalists insisted that we had to wean ourselves off of fossil fuels because we had no choice—the resource was finite. Now, global warming apostles such as Jeffrey Sachs concede there is a choice. Sachs agrees that oil and gas resources are not in short supply, at least not in the short run, but says they should be left in the ground—and that we should stop looking for more.

This is a relatively new argument, one that seems to go against human nature. But Sachs is an economist, and he is making it directly. “Oil in the ground is a non-wasting asset,” he and his co-authors write in “Escaping the Resource Curse.” “…The ground just might be the safest place for the asset, especially if there exists the risk that governments may use revenue for their purposes rather than for the good of society.”

Meanwhile, Tulsa dug up its time capsule in 2007. The vault that was supposed to be able to withstand a nuclear attack couldn’t even keep out rust and sand, and the sports car was not drivable. It is now in a museum. Oklahomans are wrestling with earthquakes caused by the disposal of water produced by fracking. And the great debate over oil continues.

real clear politics



31 Comments on "What Ever Happened to Peak Oil?"

  1. dave thompson on Thu, 29th Sep 2016 5:50 pm 

    A very silly and poorly thought out view of the problems we face today with oil depletion, new oil discovery(not mentioned) and the fracking issue as a whole. The total number of bbls being produced is a ridiculous standard of reference. Net end user energy is the real issue. My questions to the author(s); If the oil biz is so great what happened to the economy in the past decade? Why have we not seen any growth as in the past? Why is it every time an interest rate hike is a possibility the markets all run for cover and more or less take a dump?

  2. Lynn Blystone on Thu, 29th Sep 2016 6:02 pm 

    When you reading about M. King Hubbert’s peak oil one should note that he was always talking about CHEAP, CONVENTIONALLY PRODUCED oil which has certainly peaked about the time he forecast. He did not add then speculatively recovery methods such as horizontal drilling, multi stage hydraulic fracturing, etc. Thus, to dismiss his studies and forecasts because we now enjoy unconventional is a great disservice and wrong interpretation.

  3. rockman on Thu, 29th Sep 2016 8:23 pm 

    Lynn – Good luck…been preaching that for years.

  4. Boat on Thu, 29th Sep 2016 9:23 pm 

    dave,

    “Net end user energy is the real issue.”

    Can you explain? Show a chart or graph? I don’see depletion as a problem for decades. Proved reserves are seem fine.

    “Why is it every time an interest rate hike is a possibility the markets all run for cover and more or less take a dump?”

    Trillions of world debt that would cost more to service? Much more impact than oil.

  5. dave thompson on Thu, 29th Sep 2016 9:47 pm 

    Boat, the hills group? Or try looking up EROEI? Come on don’t play stupid.

  6. makati1 on Thu, 29th Sep 2016 10:23 pm 

    dave, it is NOT an act in Boat’s case. It is a fact

  7. GregT on Thu, 29th Sep 2016 10:34 pm 

    Boat isn’t ‘playing’ stupid dave.

  8. Harquebus on Thu, 29th Sep 2016 10:37 pm 

    We are living peak oil right now. Unconventional oil, price swings, debt and unfunded liabilities are effects of.

  9. Truth Has A Liberal Bias on Thu, 29th Sep 2016 10:51 pm 

    What ever happened to peak oil? Crude plus Condensate peaked in November 2015. This information is not exactly carved in a stone tablet and hidden on the dark side of the moon. Maybe production will go up again. Maybe it won’t. Nobody knows the future. But the reality is that as of today, right now, the present, world C+C peaked 10 months ago. Fucking retards.

  10. Truth Has A Liberal Bias on Fri, 30th Sep 2016 1:06 am 

    The link I post below is a great article. However, be warned, for all you fucking retards that can’t read a graph,, and that’s most of you dumb fucks on this comment board, it’s probably not for you.

    http://crudeoilpeak.info/incremental-crude-production-update-august-2016

  11. GregT on Fri, 30th Sep 2016 1:25 am 

    Thanks THALB,

    My dog was mesmerized by all of the colors in your linked ‘graph’. Unfortunately, the vast majority of all species of plants and animals on the planet Earth do not have access to the internet, as fucking retarded as you might think that they all are. Dumb fuck.

  12. Cloggie on Fri, 30th Sep 2016 3:54 am 

    @Lynn – we were all sold the message by Richard Heinberg et al that higher hanging fruit isn’t worth to be picked. But technology did push economic boundaries, like it or not.

    And the fossil fuel age will be plodding along for at least another few decades, enough to carry out the energy transition in developed nations.

    If underground coal gasification technology will be developed, there won’t be a shortage of fossil fuel for centuries to come.

    https://en.wikipedia.org/wiki/Underground_coal_gasification

    Obviously we shouldn’t move in that direction but move straight into renewable energy. The EU goal of phasing out most fossil fuel by 2050 is the way forward.

    https://en.wikipedia.org/wiki/Energy_policy_of_the_European_Union

    What we need to help achieve that goal are higher oil prices and Paris accords implemented.

    Massive European offshore wind park plans:

    http://www.4coffshore.com/assets/images/pages/home/Global-offshore-windfarm-map.jpg

    Planned maintenance island in the North Sea:

    https://www.youtube.com/watch?v=vOz0okqTW4M

    Zeekracht:

    http://assets.inhabitat.com/files/zeek-ad01.jpg

    You don’t need the mountains of Norway for pumped hydro-storage, shallow water will do:

    http://www.renewableenergyworld.com/content/dam/rew/migrated/assets/images/story/2013/1/21/large-belgium-plans-to-build-island-to-store-excess-wind-energy.jpg

    Jobs of the future:

    https://www.youtube.com/watch?v=nSWzXduc-N8

    People like shortonoil who worry about depletion should face the new reality.

  13. makati1 on Fri, 30th Sep 2016 4:19 am 

    “And the fossil fuel age will be plodding along for at least another few decades, enough to carry out the energy transition in developed nations.”

    LMAO Wrong in so many ways…

  14. Davy on Fri, 30th Sep 2016 4:59 am 

    Clog, the fossil fuel age might be clogging along at least a few decades. Modern civilization is in the zone of a complex destructive change. We have no way of knowing how this will turn out. This applies to your so called “energy transition” you love to preach about. Energy transition will need a knowledge and attitude transition of which I am not sure we are capable of. I say this because it does not matter what type of energy we use we are at limits of growth and in diminishing returns to technology and efficiency. This existential predicament of limits to growth is within our modern civilization and the greater earth “Ecos”.

    If Europe where to make an energy transition I doubt that will scale to the world. This is a global world that is allowing a European energy transition. Europe does not have what it takes to do it alone. You want to think Europe has the right stuff but it doesn’t. I am not sure Europe will be united much longer because of political and economic storms brewing. Without a united Europe there will be no European energy transition.

  15. Davy on Fri, 30th Sep 2016 5:25 am 

    “This Is How Much Liquidity Deutsche Bank Has At This Moment, And What Happens Next”
    http://tinyurl.com/gme73tx

    “It is not solvency, or the lack of capital – a vague, synthetic, and usually quite arbitrary concept, determined by regulators – that kills a bank; it is – as Dick Fuld will tell anyone who bothers to listen – the loss of (access to) liquidity: cold, hard, fungible (something Jon Corzine knew all too well when he commingled and was caught) cash, that pushes a bank into its grave, usually quite rapidly: recall that it took Lehman just a few days for its stock to plunge from the high double digits to zero.”

    “Deutsche Bank stands at the center of the European financial system – it is a major counterpart of all relevant European banks, and broader. Recent reports of potential litigation hits have compounded capital concerns, and raised the overall level of market anxiety. “Crisis” questions are being asked: “is there risk of a financial crisis re-run” and “can a large European bank face a liquidity event”?”

    “the biggest threat to DB is not so much its hedge fund client base, whose damage potential is limited, but the depositor base. Again: while Lehman failed, it did so as a result of its corporate counterparties suffocating the bank by rapidly pulling out their liquidity lines. Lehman, however, was lucky in that it didn’t have retail depositors: it death would have likely come far faster as the capital panic was not limited to institutions but also included a retail depositor bank run. This is where Deutsche Bank is very different from Lehman, and far riskier, because if the institutional panic spreads to the depositor base, which as the table below shows amounts to some €566 billion in total, and €307 billion in retail deposits…. then all bets are off”

    “it will keep the market on edge and quite volatile, because as Jeff Gundlach explained today, a “do nothing” scenario is no longer an option for CEO John Cryan as the market will keep pushing the price of DB lower until it either fails, or is bailed out.”

  16. Cloggie on Fri, 30th Sep 2016 5:37 am 

    What happened in the US in 2008 can happen in Europe. Rumors has it that the DB quietly requested financial support from the German government. But these traitors and George Soros groupies around Merkel need billions to keep Greek commie scoundrels afloat, as well as drag in millions of “superfluous people” (©Kunstler), not to be confused with Clinton’s “deplorables” (who at least can carry their own weight and pay for themselves).

    Since the German government can no longer print money, the ECB will likely come forward Fed-style and give a helping hand here and print a trillion euro or 2 and buy shares in the DB.

    The difference with Lehman this time will be that DB customers will be expected to contribute, no questions asked. Legislation to that effect is already in place. Customers with reserves under 100k will be spared, above that not so much.

    The ECB can afford that as inflation is almost 0.

    http://www.bloomberg.com/news/articles/2016-09-24/merkel-rules-out-assistance-for-deutsche-bank-focus-reports

  17. Davy on Fri, 30th Sep 2016 6:19 am 

    “The ECB can afford that as inflation is almost 0.”

    Oh, really, and what of confidence? Is confidence a given if central banks act? You are stepping into tar, baby. Get a grip Cloggie, there are limits to confidence and liquidity. It is called human nature and Mr. Clog doesn’t have a corner on that. I don’t know how this will turn out but I know it is an unknown. This may not be an event either it could be the begging of the end type process.

  18. Davy on Fri, 30th Sep 2016 6:19 am 

    Here is an interesting article for the conspiracy minded:

    “A Conspiracy Theory About Conspiracy Theories”
    http://tinyurl.com/j3xlvvz

  19. Cloggie on Fri, 30th Sep 2016 6:32 am 

    The time that I am going to let myself being taught on anything by the Paul Rosenberg’s of this world is long behind me.

  20. Davy on Fri, 30th Sep 2016 7:05 am 

    The intention is not to teach but to entertain. You are too serious Cloggie, lighten up.

  21. james l fisher on Fri, 30th Sep 2016 7:46 am 

    Zerohedge had an article about the Backen oil field recently. Apparently the oil companies are only 30 billion in the red after finding this oil bonanza. So pardon me if I disregard the peak oil is dead meme and look at reality. Shale oil has been an economic disaster and all the wishful thinking by climate change deniers, and magical thinkers will not make it true.

  22. Prolific poster on Fri, 30th Sep 2016 10:31 am 

    The Bakken oil field peaked early this year. Even so, at the most generous estimate it only held 2 years worth of world consumption anyway. And even when it was at full production the total US oil production was still below 10 m bbl a day so where are these rose colored glassed, short sighted idiots coming from? Oh, they must be the climate deniers and the nutbags who think overpopulation isn’t an issue either.

  23. Jerry McManus on Fri, 30th Sep 2016 11:01 am 

    I recently had some thoughts on peak oil that I felt compelled to spew out onto a pdf.

    “Why Hubbert is Right and Peak Oil Idiots Are Wrong”

    https://drive.google.com/open?id=0B5ci5zMS_2kZOW1VdGxOUURCdVU

  24. rockman on Fri, 30th Sep 2016 2:01 pm 

    “Even so, at the most generous estimate it only held 2 years worth of world consumption anyway.” And some other perspectives:

    The US (3rd largest oil producer on the planet): 311,000 oil wells producing from 1 to 15 bopd. And has 1,325 wells making 400+ bopd. Another perspective of the 3rd largest oil producer: 96% of all the US oil wells produce between 1 and 50 bopd.

    Another perspective: the world consumes daily the equivalent production of 6,300,000 average US oil wells. And another perspective: the world consumes about 3 bbls of oil per second. IOW the daily production from the average oil well in the 3rd largest producers satisfies about 5 seconds of global consumption. And another perspective: the US produces 0.25 bbls of oil per second.

    And now, grasshoppers, what do these different perspectives mean? I’ll give the correct answer tonight.

  25. dave thompson on Fri, 30th Sep 2016 3:25 pm 

    @ Jerry McManus. Great Post love the overall readability and frank upfront points made. The “idiots” have some sort of vested interest to be “idiots” to bad most will listen to the “idiots”. Leaving the rest of us to our agreement in the facts before us.

  26. jjhman on Fri, 30th Sep 2016 4:53 pm 

    Usually, these days, articles with “Peak Oil” in the title are such dumb, cornucopian nonsense that i don’t even bother to read them but I was bored this afternoon.

    In the first paragraph the dim witted teeny-bopper writing the article says that cigarettes cost 50 cents a pack in 1957.

    I started buying cigarettes in 1957 and if you put two dimes in a cigarette machine in 1957 you got a pack of Luckies with two pennies (or 3?) inside the cellophane.

    The first pack of cigarettes I ever saw for 50 cents was in a vending machine at the JFK airport January 25, 1967. That was the day I was discharged from the army. Cigarettes were 15 cents in USEUR PX stores.

    Anybody who is dumb enough to make up phony data in the first paragraph doesn’t deserve to be read.

  27. dave thompson on Fri, 30th Sep 2016 5:05 pm 

    @jjhman, yea I concur, I started buying the cigs out of a machine in 1970 at .45cent a pack, found in most restaurants at the time.

  28. rockman on Fri, 30th Sep 2016 10:45 pm 

    JJ – Tue rigs fluff is funny. But not his only attempt to rewrite history: “…even though the president makes no secret of his desire to shift the U.S. economy away from fossil fuel dependence”. Many times I’ve run over the long list of POTUS actions that clearly contradict that statement. I won’t this space on this article.

  29. Dredd on Sat, 1st Oct 2016 5:08 am 

    If it is obvious, Oil-Qaeda will debate an issue (When The Obvious Becomes “Debatable”).

  30. Jerry McManus on Sat, 1st Oct 2016 12:18 pm 

    @dave thompson, thanks! I wasn’t sure if it was “over the top”, but then that’s never stopped me before…

  31. phoenix real estate photography on Sat, 15th Oct 2016 4:43 pm 

    interesting read, thanks!

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