Thursday, November 11, 2010

Well Peak Oil is officially here

In fact peak oil has been with us since 2006 according to the 2010 World Energy Outlook released on November 9th by the International Energy Agency.

To be specific this is a peak in conventional crude oil. Essentially conventional crude oil is the oil that we get from places like Saudi Arabia and that we see gushing out of the ground in movies.

Other forms of liquid fuels are liquid natural gas and unconventional crude oil (tar sands, shale oil, ect...). These have not peaked yet according to the IEA but it should be noted that conventional crude oil makes up the vast majority of our liquid fuels. So what does this mean for us?

Essentially this means that oil prices will go up to levels last seen in summer of 2008 and most likely higher (potentially much higher). How soon this happens depends on the rate of world wide oil consumption growth.

The recession caused a marked drop in world wide oil consumption. We are now consuming oil at a rate less then what we were in 2006. This is why oil prices dropped after the summer of 2008.

To put it bluntly the Great Recession should be renamed to the First Peak Oil Recession. The sad news is that it will only be the first of many.

So what about the other liquid fuels that I mentioned above? The IEA predicts that they will continue to a slow growth rate at least through 2035. Now to be clear they are not predicting any quick growth rates for these fuel sources.

The IEA also predicts that conventional crude oil will some how plateau for the next 25 years. This is not going to happen. No oil field in the world has ever followed that pattern.

It is very well understood that when an oil field peaks it begins a downward drop that mirrors its previous growth pattern. The result is the classic bell curve.

This growth and decline pattern has been observed over and over again in individual oil wells, oil fields and whole countries.

For example here is the oil production graph with oil imports for the United States of America:

The world wide oil production graph is essentially the aggregate of all these bell curves. The idea that some how this aggregate will form a plateau is just not accurate.

So while the other liquid fuels will make the rate of decline a little slower they will not make up for the loss of conventional crude oil. In addition the other liquid fuels will themselves peak in the future.

Peak Oil is here to stay. No public policy will magically make it go away. We are all going to have to start to learn how to do with less oil and start transitioning our society into a post carbon world.

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