Is 'Peak Oil' Over?

[David in MN]

I put this in economics, not energy because it is (in my opinion) an economic assessment but could be moved if necessary.

I don't take this question lightly and I'm very open to some pushback. I know I'm tackling a sacred cow and peak oil has been a preparedness topic for a long time. I'm not suggesting we all dump our stored fuel down a storm drain or cancel plans for off-grid solar/wind setups. I'm also not focusing on the morality and ethics of drilling procedures or slave labor conditions in the Mideast. My only focus is whether the concern of peak oil is over.

Oil is normalizing to trade in a band. What do I mean by that? Oil as a commodity only makes money for a producer when sold at a certain pricepoint. For different producers a different pricepoint is required. Saudi Arabia requires less per barrel to be profitable than does North Dakota. SUffice to say it costs the Saudis $25 to produce a barrel while it costs the Canadian Oil Sands $70. These represent both the high and low end of known oil reserve production.

With the price of oil (today 1/10/17) at about $53 a barrel reserves in Brazil, Mexico, US shale, and Canadian sands are priced out. In faact, new deep sea discoveries are being priced out. Take a moment to let this sink in: We are discovering and proving oil reserves that are not currently economically feasible. In other words, the drillers are establishing a price ceiling where increased production from currently untapped reserves come online and provide enough supply to stabilize price.

So oil has pressure from both sides. You know it really can't slide below $25 and over (about) $65 the flood gates open. ANd with proven reserves exanding while remaining untapped, total supply globally is growing with no end in sight. And the markets and futures contracts are so narrow and predictable right now that the traders are in the doldrums for the foreseeable future.

http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html

The days of predicting skyrocketing and ever increasing oil prices are gone. At least in my book. Of course there are very smart people who disagree. Fortunately for me they don't run my trading portfolios. Unfortunately for millions of people they run the economies of Venezuela and Brazil.

Full disclosure both myself and my daughter own shares of Exxon Mobil (XOM) and I routinely trade in South American drillers.

[Chemsoldier]

I am not sure I am convinced but well argued. What are the consequences of the energy becoming increasingly expensive (in terms of energy and capital) to extract? Is there a point where it is too expensive to extract to provide all the roles in the economy it does? What are the impacts?

[mountainmoma]

But, this is what the peak oil sites talk about, exactly as you say. We wont run out, the price gets too high for the economy to handle.

What they think we will see is oscillating prices. So, for the tight oil, or whtever they are calling it, the expensive to get oil we have brought online, we brought it online when prices were high per barrel, and when prices are too high per barrel people and businesses start using less, so then less demand. Less demand means that  "fight" over existing consumers of it happens, which the low prices fields ( Saudi arabia, etc...) can make that low price and make a profit, and others have to too to get business, because they already have sunk costs. The big expense was the drilling, and they already did that, so they make enough pumping it out at the low price to pay for the labor and pumping. But, they do not make new expensive fields at this low price, so then the supply will constrict and the price will spike again.

You know what I mean. In any case, what they project is the price oscillating, specifically Peak Prosperity says that the price needed to make getting the oil pay is higher than the price the economy, as we now have it running, can take.

[David in MN]

Historically economies run better with expensive oil (or any commodity for that matter). It turns out that having gasoline cheap enough that we drag race Hummers isn't necessarily good.

As far as the oscillation being a problem, I can only assume this is being formulated by people with no commodity experience. Things like the Chicago Board of Trade (CBOT) exist historically so farmers can buy or short futures in the crops they grow. In corporate life we call this arbitrage.

As an example, I worked for a spell in cocoa (a commodity) in Big Food. Our contracts were north of $40,000,000 (I won't be specific) and we leveraged contracts of one supplier against another while buying and selling said contracts on the open market for a better deal. I personally worked to accept a lot of cocoa that was outside spec because the contract was bought at a significant discount. I helped find where it could fit and saved the company a few million. I can only assume oil companies have a futures buy and option strategy to stabilize and reduce pricing. This isn't simple economics like vertical integration. It's very complex.

The only thing volatile oil prices are guaranteed to do is to make oil traders and people like me a lot of money. We love volatility.

[mountainmoma]

We have more substitutes for cocoa bean ( well, maybe not, I mean chocolate....)

Not my area to make arguments at all, but, when oil is 100/barrel this makes everything consumers buy more expensive. Yes, it makes traders money too, I am sure. But, fod is grown with oil, everything is transposrted with oi, people have to heat their houses and get to work.

so, if prices are high, the economy is not functioning the way we presently have it set up ( we seem t be set up assuming constant growth)

In other words, what Chemsoldier said, "...too expensive to extract to provide all the roles in the economy..."

I am not capable of arguing this , but I have read many, many persuasive ones

[FreeLancer]

Is there any consensus about what's driven oil prices lower, supply or demand? 

[David in MN]

Is there any consensus about what's driven oil prices lower, supply or demand?

It's a futures market. Supply and demand don't actually matter. What matters is the marginal cost to produce more. As the marginal cost approaches zero (as barrel cost rises) price normalizes.

This is a classic Chicago School example of supply side economics. All the math occurs at the margin, not deep in steady state. Sorry to overuse 'margin' but it is very important. The $30/barrel oil and $77/barrel oil are already in the system. What matters is the momentary (spot) price and the price going forward.

When we talk aggregate supply and demand I worry we slip into Keynsian steady state which I feel doesn't exist.

[mountainmoma]

 "....energy was boring (to me) this year, but I keep investing in it. Of course, lower energy prices were hailed as great tax breaks for the consumer, ignoring those who say the economy drives commodity prices not vice versa. Like every other market, however, has been totally financialized. The supply/demand market got replaced with a casino-based futures market, and we know that casinos are trouble. Then there’s that whole petrodollar thingie wherein our alliances in the Middle East keep the dollar at reserve currency status and allow us to sell debt. It also seems to be the proximate cause for bombing vast numbers of Arab countries, but I’m ahead of myself....."

a quote from the paper, 2016 Year in Review
A Clockwork Orange
David B. Collum
Betty R. Miller Professor of Chemistry and Chemical Biology
Cornell University

https://s3.amazonaws.com/cm-us-standard/documents/2016-Year-In-Review-PeakProsperity.pdf

a long review that goes all over, but he seems to agree that the pricing is being done by a "casino based futures market"

so, even if you both are correct that that is setting current price. The thing is, if current price is too low, we do not develop new expensive fields, because no matter what the speculative market decides, someone has to make money drilling, pumping and refining the oil. If the price is low, then no incentive to drill and develop.

While speculation may set todays price, ultimately I would call it demand pricing, as people do in fact stop buying the descretionary portion of fuels that they can do without, and often that is do without and hardship resulting from it, when it gets too expensive. And, so then the price has to fall to get them to buy more.

SO, David, doesnt the speculative market take into account how much they think the market will bear in terms of price ?

[FreeLancer]

It's a futures market. Supply and demand don't actually matter. What matters is the marginal cost to produce more.

I don't get it.  Supply and demand don't matter, ever?  Or are you just talking short term? 

[surfivor]

 I am not sure how much oil there really is ? Most of the geologists work for either indirectly or otherwise for industry or govt. How much oil there is and the price are all geo political and thus complex and I have alot of doubts that the average person is intended or expected to be allowed to know the truth. As long as there is a perceived shortage, various wars or high prices are justified .. and if the price goes up and down the instability makes it difficult for other sources of energy or independent smaller operations  ..

 Not a single news or alt news source I have ever listened to has been able to convince me definitively that I could be sure of what is the overall world supply of oil or when it might run out. I have seen alot of evidence of price manipulation and market manipulation over the years.

 I have also heard that there is alot of oil here or there, in Australia or other places but this too I have no good sense on. There are various forces that it would seem would rather have oil be more of a scarce commodity only to be found in politically unstable parts of the world.

Also, the left would rather see oil as a scarce commodity so as to inspire alternative energy otherwise there is no incentive so is the thinking .. but there are political motivations to believing this or that about oil supply

[Carl]

  Man has no idea of how much oil exists or even how much man has extracted from the earth.

What if oil is not finite,but a naturally occurring by product of the earth,and not dependent on dead plants or dinosaurs?

  http://www.viewzone.com/abioticoilx.html

[David in MN]

I don't get it.  Supply and demand don't matter, ever?  Or are you just talking short term?

No, actually it is a long term phenomenon. The truth is that we don't really know what the S/D curve will look like in the future and the longer we set our horizon the murkier it gets. There will come a time where humans stop using oil for energy. We just don't know when. Likewise, there are spikes in demand due to industrialization but we don't know where or how big they will occur.

What the futures markets tell you is not the supply and demand but the marginal cost and utility. In fact it offers virtually no information at all about demand. To even pretend that we could aggregate all the data necessary to formulate a supply and demand curve in oil would be a lie. If it helps to think of it, a farmer has no idea what the supply and demand of his crop will be when he plants his seed. He can only look to a futures market to see what the market would price the next unit of said crop put on the market (this is the marginal aspect completely lost in traditional 9th grade economics). I'm a bit in the weeds with some economic principles here and I hope I'm not losing people. The big takeaway is that S/D is supposed to offer a "market clearing" price that's 100% efficient while futures markets tell you what price the next unit will go for. It's static vs. dynamic.

  Man has no idea of how much oil exists or even how much man has extracted from the earth.

What if oil is not finite,but a naturally occurring by product of the earth,and not dependent on dead plants or dinosaurs?

  http://www.viewzone.com/abioticoilx.html

While not totally germane to the topic, I have been studying this for a while and the mathematics (mostly done by Russian physicists) is a fascinating topic. If you'd like to start a thread on the fact that fossil fuels may have nothing at all to do with fossils, I'll chime in.

[Chemsoldier]

  Man has no idea of how much oil exists or even how much man has extracted from the earth.

What if oil is not finite,but a naturally occurring by product of the earth,and not dependent on dead plants or dinosaurs?

  http://www.viewzone.com/abioticoilx.html

Isnt this moot if we are in fact extracting fast enough to make it increasingly scarce in easy to extract form?  OK great, its not fossil...it still seems to be getting more difficult to extract.

Will the curve to increase extraction capability continue to improve the way that it has or will the technology mature to the point that it reaches a plateau similar to how say...handgun technology has plateaued?  Then, increasingly hard to extract petroleum turns into just plain inaccessible.

Yes, I know the economic theories...it becomes valuable enough that someone figures it the **** out.  I hope so, but I don't think it is a valid assumption that that will always be the case.  Back to the handgun analogy.  Handgun technology is basically mature. The last 30 years is just nibbling around the edges, training, red dot optics, etc.  The amount of "improvement" is not marked and seems unlikely to become so.  Improvements are marginal and massively more expensive.  We tried gyrogets, flechette packets, explosive rounds, caseless ammo, directed energy...nada.

[surfivor]

Isnt this moot if we are in fact extracting fast enough to make it increasingly scarce in easy to extract form?  OK great, its not fossil...it still seems to be getting more difficult to extract.

 That always seems to be the argument that is hard to dispute however, it's still observing the activity of drillers and drawing conclusions from that which could be explained in other ways even though to many people it's a compelling argument 

 How deep into the ground is the oil in Saudi Arabia ?

Apparently Russia produces more oil than Saudi Arabia, that seems to be one reason the price went down to try to hurt the Russian economy ..
 
 Where does US oil production come from ? How deep in the ground is the oil ? How do you measure how hard it is to get ?




 

[endurance]

The "more is always being discovered" dream has a reality component on the other side. We drilled for the easiest, most accessible, most commercially viable stuff first. In 1920 it took one unit of energy going in to recover hundreds of units of energy coming out. In the 1970s that ratio was down to 30:1. Now some of the oil being recovered by fracking and extracted from oil sands is 5:1. The financing for fracking in North Dakota is a house of cards. Many of these wells are costing $4-5 million to drill, but on the other side, the initial production drops by 40% the first year.

There's still fields in Texas that have been producing 40 years that haven't lost that kind of production. What rock the oil is in matters. It matters a lot. If it's porous, the oil flows well and you need few wells to produce a lot of oil. If it's not, you have to drill more wells, do more fracking and get less return on investment.

The problem with the term Peak Oil is that it's incomplete. Are we talking about Peak Conventional Oil?  Peak Shale Oil?  Peak Oil Sands oil?  Because all you have to do is look at the production graphs for a given well or field and see that wells don't produce the same amount forever. The production drops off with time. What should matter is the rate of new discoveries. Which have fallen. And where those discoveries are is expensive places to extract it. Places like deep in the Gulf of Mexico, places in tightly pored shale rock, and countries we shouldn't be supporting economically like lands of our enemies.

We will never run out of oil, but that doesn't mean we will be continuing our happy motoring for the next century either. Sooner or later it will not be economically viable to use oil for transportation. Sooner or later the amount of money a family spends on energy will mean they can't drive to that job or they have to move or they can't afford that home anymore. That's the truth about peak oil.

[bigbear]

Are you questioning the invisible hand?!   

In a static world, the terms marginal cost/profit and utility can be swapped out for supply and demand, respectively.  Aren't there direct correlations between those measures?  If profits of a product are made in the margins, then that determines the supply.  If the work of a product is a measurement of its utility, then that determines the demand.

Maybe there's layers of expectations, future events, trades, time, etc... that can't be measured without a Magic 8 Ball.  But there's a parallel economic theory at work. 

Is "Peak Oil" over?  Well, the rate of consumption is greater than the rate of geologic production.  And everyone seems to believe that gap is growing.  So unless/until that changes (however near/far), we will run out of earth created oil.  So I think we're in a pause period.  The only differences as I see it between 10 years ago and today is an increased knowledge of what was unknown quantities and our knowledge/expectation of how to get it. 

[surfivor]

 I don't exactly understand oil exploration .. If there is oil someplace, if that someplace is off the coast or in another country, perhaps only large companies can get involved and I don't know what their motivations may be .. If oil is in Texas maybe it's easier for smaller companies ..

 I suppose oil would or could run out some day but it's hard to get any sense of how far away that is ? Previous predictions where that we would run out in something like 2014. Why was that prediction so far off or who makes these types of predictions ?

 If Russia has oil, but things are not friendly then that has a possible effect etc ..

Seems like alot of unknowns to me and whatever large corporations know, they would likely consider it their private business

[David in MN]

We could have claimed that drilling at all made oil too difficult to get. There was a time when it was considered a nuisance and pooled on the surface.

My central claim is that it isn't getting more difficult to get oil. It's become such a mature market that pricing is getting very tight and producers can better predict costs and margins. That costs have raised and margins narrowed isn't necessarily a bad thing.

As far as getting our act together and solving energy problems, we did that. We developed technology to reach previously unreachable oil. We also found alternatives (my car gets synthetic). The pessimism that these remarkable leaps in innovation don't have an effect and don't signify a radical change from an industry beholden to a few petrol rich countries to a diversified commodity market seems wrong to me.

If you took the time machine back to the late 70s and made the correct prediction, people would laugh at you. I feel like Matt Ridley's proverbial "Rational Optimist" but how many times do we need to repeat the Simon/Ehrlich bet before we give our own innovation the respect it deserves? It wasn't CAFE standards, speed limits, ethanol mandates, weather dependent mixtures, or any of that nonsense. It was capitalist innovation once again.

[surfivor]

Here's another chart, certain companies are major players and the majority are connected directly to governments.



http://www.eia.gov/energy_in_brief/article/world_oil_market.cfm

There are three types of companies that supply crude oil to the global market. Each type of company has different operational strategies and production-related goals:

    International oil companies (IOCs): These companies, which include ExxonMobil, BP, and Royal Dutch Shell, are entirely investor owned and primarily seek to increase their shareholder value. As a result, IOCs tend to make investment decisions based on economic factors. These companies typically move quickly to develop and produce the oil resources available to them and sell their output in the global market. Although these producers are affected by the laws of the countries in which they produce oil, all decisions are ultimately made in the interest of the company and its shareholders, not in the interest of a government.

    National oil companies (NOCs): These companies operate as an extension of a government or a government agency, and they include Saudi Aramco (Saudi Arabia), Pemex (Mexico), the China National Petroleum Corporation (CNPC), and Petróleos de Venezuela S.A. (PdVSA). These companies support government programs financially and sometimes strategically. These companies often provide fuels to domestic consumers at a lower price than the fuels they provide to the international market. These companies do not always have the incentive, means, or intention to develop their reserves at the same pace as investor owned international oil companies. Because of the diverse objectives of their supporting governments, these NOCs pursue goals that are not necessarily market oriented. The goals of these companies often include employing citizens, furthering a government's domestic or foreign policies, generating long-term revenue to pay for government programs, and supplying inexpensive domestic energy. All NOCs belonging to members of the Organization of the Petroleum Exporting Countries (OPEC) fall into this category.

    NOCs with strategic and operational autonomy: The NOCs in this category function as corporate entities and do not operate as an extension of the government of their country. This category includes Petrobras (Brazil) and Statoil (Norway). These companies often balance profit-oriented concerns and the objectives of their country with the development of their corporate strategy. Although these companies are driven by commercial concerns, they may also take into account their nation's goals when making investment or other strategic decisions.

In 2014, 100 companies produced 82% of the world's oil. NOCs accounted for 58% of global oil production.

[fred.greek]

My understanding is that “peak oil” referred to the time period where humanity had reached the point of maximum capability of pumping oil out in any given time period.

If during that time period demand did not exceed peak pumping potential, rationally we would not see any jump in price, indeed during this limited period of maximum pumping capacity, we might see a drop in price. 

The price spike would be expected as maximum pumping capacity slid down the curve, while demand failed to fall at the same rate as pumping capacity.

[mountainmoma]

My understanding is that “peak oil” referred to the time period where humanity had reached the point of maximum capability of pumping oil out in any given time period.

If during that time period demand did not exceed peak pumping potential, rationally we would not see any jump in price, indeed during this limited period of maximum pumping capacity, we might see a drop in price. 

The price spike would be expected as maximum pumping capacity slid down the curve, while demand failed to fall at the same rate as pumping capacity.

exactly ! 

[surfivor]

My understanding is that “peak oil” referred to the time period where humanity had reached the point of maximum capability of pumping oil out in any given time period.

If during that time period demand did not exceed peak pumping potential, rationally we would not see any jump in price, indeed during this limited period of maximum pumping capacity, we might see a drop in price. 

The price spike would be expected as maximum pumping capacity slid down the curve, while demand failed to fall at the same rate as pumping capacity.

 Not sure what you are saying but "peak oil" implies we have peaked out and it's all downhill from here .. sort of like a football or basketball star who can't be expected to perform much better and is in decline .. This sort of happens to say a boxing champ who reaches middle age.

 It implies the supply is ever dwindling and the price is ever rising .. If that changes for a significant length of time and goes on the upswing then one has to wonder if other factors are involved ..

 peak oil has a bit of an apocalyptic aspect

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

Peak oil, an event based on M. King Hubbert's theory, is the point in time when the maximum rate of extraction of petroleum is reached, after which it is expected to enter terminal decline

[mountainmoma]

A short article on shale oil producers view of price/risk

http://thesovereigninvestor.com/oil/the-rise-of-black-gold/

[David in MN]

Help me to understand what I clearly don't.

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

I can read the theory. But my takeaway is that once oil production has 'peaked' (which seems to be a somewhat unclear term) production will diminish and be outpaced by consumption.

Ignoring that the creator of the theory (Hubbert) predicted oil to "peak" in 1970 which is flat wrong, wouldn't access to new oil sources further confound the prediction if not negating it? Wouldn't a stabilization of futures prices and option contracts imply that producers know they can meet demand? If the concern is the moment that peak extraction is reached, these factors would seem to indicate that is at the very least far off.

Assuming this to be a serious theory and not a can that we keep kicking down the road as our gravest concerns never seem to materialize, don't these facts at least give us pause? If not, what would? Dead serious, what would disprove this theory if not increasing supply and low price variability?

Clearly I'm missing something that the believers see. I'd like to be informed because from my POV (which is biased by my background in economics and trading) it's not exactly holding water.

[surfivor]

peak oil is also peculiar because it seem to imply mankind can never power anything that doesn't run on gas because science and technology can't move fast enough to provide viable and affordable alternatives. It seems like there may be forces at work to slow down the technology developments or to make sure new technology is not going to be very cheap ..

 Peak oil is also economic because when you hear about peak oil, you often hear stuff like "it will be a crisis", "it will lead to economic decline" .. etc .. but the way it is often portrayed is that we are completely helpless to stop it even though people always think science is going to solve everything so I really have to say where are these scientists who are supposed to save us anyway ?

https://en.wikipedia.org/wiki/Peak_oil#Economic_growth

"As the industrial effort to extract new unconventional oil sources increases, this has a compounding negative effect on all sectors of the economy, leading to economic stagnation or even eventual contraction."


=================

Here it is, the typical explanation .. our demise is not due to government as libertarians would claim but when the oil runs out we'll all be as good as dead. Either that or living in primitive dwellings and cutting trees for our only source of fuel


https://ourfiniteworld.com/

We first used fossil fuels to allow the population to expand, starting about 1800. Things went fairly well until the 1970s, when oil prices started to spike. Several workarounds (globalization, lower interest rates, and more use of debt) allowed the economy to continue to grow. The period since 1970 might be considered a period of “stagflation.” Now the world economy is growing especially slowly. At the same time, we find ourselves with “overhead” that continues to grow (for example, payments to retirees, and repayment of debt with interest). The pattern of past civilizations suggests that our civilization could also collapse.

Historically, economies have taken many years to collapse; I show a range of 20 to 50 years in Figure 1. We really don’t know if collapse would take that long now. Today, we are dependent on an international financial system, an international trade system, electricity, and the availability of oil to make our vehicles operate. It would seem as if this time collapse could come much more quickly.

With the world economy this close to collapse, some individual countries are even closer to collapse. This is why we can expect to see sharp downturns in the fortunes of some countries. If contagion is not too much of a problem, other countries may continue to do fairly well, even as individual small countries fail.

[mountainmoma]

As you have stated, price is not just a function of amount of oil. So, price does not define Peak Oil. Just being at the Peak does. As someone else stated, there is ALOT of oil at the peak, then it declines.

Maybe I will try to find correct data, but we DID hit and pass Peak Oil production in the US ( regular oil, not tight oil) when the prices got high enough, we have gone to developing non-standard sources. Since we can also alter how quickly we pump out, we may use it quicker or slower, but those fields we have going in the world, how much is available is at or near the peak. Obviously, it is a finite resource. The regular, easy to get oil did peak as predicted, or very close to it.

It makes a very big difference to the overall economy if it costs EROI 10:1 vs 3:1 (for example, I do not have ratios in front of me) Oil will not go away, it will get very expensive before that.

So, yes, we can get oil, we can predict it, but the easy stuff peaked and the stuff we can get will continue to have worse and worse EROI.

If something was going to be an even bell curve, it would follow that at peak you have used half, not all, not 80%, but half. Things are not even, it is hard to predict how steep or not the downward curve is how fast we use up the other half.

One of the things peak oil emphasies is how disruptive to common people the economies of oil decline is and will  be. ANd, here there gets speculation of course, how soon will the decline (in the ground) translate to decline of available to use (as these are 2 very different things) ? How much and how soon will common people be disrupted by the economy that results from high prices of oil and job losses from changing economic picture ?

We know that we already have a very high real unemployment ( aged 18-64 non-disabled adults not in work force)

Ironically, the other peak prosperity linked article from this morning said they are moving to more automation in drilling and oil production, which of course keeps the price lower, so they can develope a bit more of the hard to get stuff in teh US at a price that they can potentially sell it at -- but then, more unemployment !

[mountainmoma]

Got a decent link for you, John Michael Greer on Peak Oil and the the peak oil doomsayers ( these are 2 different things, there is peak oil, what that means and will mean is speculative)

http://thearchdruidreport.blogspot.com/2016/02/whatever-happened-to-peak-oil.html

: .....To understand what happened instead, it’s necessary to keep two things in mind that were usually forgotten back when the peak oil scene was at white heat, and still generally get forgotten today. The first is that while the supply of petroleum is ultimately controlled by geology, the demand for it is very powerfully influenced by market forces.....factor in lag times on its effects on both production and consumption, and you get a surge in new supply landing right about the time that demand starts dropping like a rock. That’s what happened in 2009, when the price of oil plunged from around $140 a barrel to around $30 a barrel in a matter of months. That’s also what happened in 2015, when prices lurched down by comparable figures for the same reason: surging supply and plunging demand hitting the oil market at the same time....Could the bloggers and researchers in the pre-2009 peak oil scene have predicted all this in advance? Why, yes, and as a matter of fact a few of us did.  The problem was that we were very much in the minority. True believers in an imminent peak oil apocalypse denounced the analysis just outlined .....Your average barrel of oil from a conventional US oilfield today has a net energy around 30 to 1.....credible estimates put the net energy of tar sands and hydrofractured shales well down into single digits. ...The decline in net energy won’t be visible in the places you’d expect, either. As long as the hard facts of geology make it physically possible to do so, large volumes of “petroleum,” in some sense of that increasingly flexible word, will continue to be produced and consumed. With each year that passes, though, a larger fraction of that output will have to cycle right back into the extraction and refining process, leaving less and less available for all other uses. Thus declining net energy promises to play out over time in the form of creeping dysfunction throughout the economic sphere, in the form of neglected and abandoned infrastructure, failing institutions, a rising tide of permanent joblessness and homelessness, all papered over with an increasingly brittle layer of propaganda spewed out with equal enthusiam from the partisans of every officially acceptable point of view....."

[endurance]

Hubbard's 1970 prediction for US Peak Oil production was accurate if you look strictly at conventional oil in the US. We have not produced more conventional oil in the US since the early 1970s. Since that time we have depended on imports, even after the discovery and development of the Alaskan oil fields. US oil production had been in continuous decline since the early 1980s (there was a second rise in the early 1980s with the completion of the Alaskan pipeline, but not as high as the 1970s peak) until the flurry of recent shale oil drilling.

Shale production in both eagle ford and the Bakkan appear to have already peaked even though some drilling continues. The wells are not as economically viable as originally hoped.

Why folks think this pattern won't continue baffles me. As I mentioned earlier, we will never run out of oil. That is not what peak oil is about. It is about the real limits of a finite resource and the fact that it will be come more and more expensive to get the more and more difficult to extract oil out of the ground. Companies are losing their asses in the Bakkan fields and future investors will be timid to return to shale because the returns haven't panned out. When oil prices get over $100 a barrel, some will return, but an economy will struggle with $100 a barrel oil and when the economy collapses again, prices will fall again and the investors will be hosed again. yes, there is money to be made in volatility; go for it. But for endless new supplies that are economically viable?  That's coolaid I'm not drinking. The geological theories that have supported our findings to date also support that oil won't be found any deeper and the center of the earth isn't filled with oil. (At some depth, oil gets too hot and transforms into gases, generally natural gas, so that's why almost all the world's oil is found in a very limited range between about 5,000'-13,000')

[osubuckeye4]

We will never run out of oil, but that doesn't mean we will be continuing our happy motoring for the next century either. Sooner or later it will not be economically viable to use oil for transportation. Sooner or later the amount of money a family spends on energy will mean they can't drive to that job or they have to move or they can't afford that home anymore. That's the truth about peak oil.

This has always been the more legitimate outlook on peak oil.

It's not that the Earth will actually "run out" of oil and there will not be a single drop left that we're able to access. I've never been bullish on that and every time someone's tried to sell me on it I just chuckle.

It's that our demand for oil will be unable to be met in a cost effective manner, and it will have an impact on everyday quality of life around the globe. 


That said...

I have always felt that when the markets hand is forced, technological advances/breakthroughs always seem to provide a workaround.

The big concern 10'ish years ago was that India and other emerging economies were putting millions of cars on the road, and oil/gas was needed for those cars.

Now, we're already seeing the market provide an alternative in the form of electric cars. Not just in the form of $80,000+ Teslas either... Nissan Leaf goes for $30,000 or so.


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As far as what David is saying in regards to oil futures/pricing. I agree. "Peak oilers" are going to be sorely disappointed because the market seems to have flattened out quite a bit.

[David in MN]

Claiming we're post-peak because US oil production has diminished seems like a fallacy. It could likewise be argued that oil peaked in Texas, iron peaked in Minnesota, or Legos peaked in Denmark. There were more efficient ways of meeting demand.

It's also necessary not to believe we're in a vacuum. North American production has slowed primarily because of price drops in the past 2 years. They could still pump oil and not turn a profit. But the global market priced them out. It's not that no one can get more oil, it's that existing production meets demand at a lower cost.

I still have a problem with the claim that production has/is peaking, costs are rising, reserves are dwindling, and price is dropping. In fact, oil compared to any other commodity seems like it hasn't really changed price in forever. You can still get a gallon of gas with a 1948 quarter... It just doesn't feel like we're competing over a scarce resource.

I fully agree that oil, like steam engines and whale oil, will be replaced. I don't know how but we seem to be good at that historically. To argue that humanity will evolve past oil seems so obvious it would be a forgone conclusion. But I also don't think oil will be so scarce we put jars of it on the shelf as decoration.

As far as what David is saying in regards to oil futures/pricing. I agree. "Peak oilers" are going to be sorely disappointed because the market seems to have flattened out quite a bit.

Oh, an olive branch. Nice to have someone else reading the futures markets. Proximity to the CBOT perhaps?