Recently in Peak oil Category

Matthew Simmons, analyzing the recent attempts to debunk peak oil theory, summarizes the various views here:

1. Oil will remain an extremely important part of the world's economy throughout the next century as its main base of users shifts from prosperous countries to the teeming mass of humanity in Asia that previously used only tiny amounts.

2. Oil markets are now far more transparent and far more liquid given the fact that existing oil contracts allow investors to trade three to five times more oil than the world uses every day. This transparency will flood capital into oil markets, keeping the price low which, in turn, will encourage even greater demand.

3. The world's endowment of oil has never been so large, despite 150 years of constant oil use coupled with the fact that the world now consumes more than 85 million barrels of oil daily. This "fact" is why all four authors took aim at the Peak Oil worry-warts who they feel are intent on trying to convince the world that it is running out of oil.

4. The emergence of spectacular new technology will enable the supply of oil to flow far easier than ever. And, this new technology boom is just getting started. Over time, it will improve by leaps and bounds.

... and then he explains why the optimists are wrong. Excerpt:

The final topic the Gang discussed was the rapid advances in oilfield technology. Sadly, this is the greatest myth of all. I spent four decades as an investment banker to the global oil-service industry, which collectively invented all of this technology. The concept that there are new innovations in this area is false.

In fact, the seeds of this so-called technological revolution -- the ability to exploit oil from deep water or drill horizontally -- were first developed 40 years ago. I personally raised a great deal of the venture capital that helped implement some of the most important technical advances in the industry. Our firm, through advising on mergers, consolidations, reorganizations, and bankruptcies, helped save the oil-service companies that created these great technological advances that help us find and commercially exploit oil and gas.

None of this technology is new -- in fact, it is now quite mature. Sadly, there are few new ideas in the oilfield pipeline to replace advances that were made decades ago.

In my view, while Yergin, Lynch, Morse, and Jaffe, are articulate in their theories, none seem to have any strong sense of the brutally grim reality of today's oil markets. The facts speak for themselves: Oil flows have peaked, technology is now mature, the people running the industry are far too old, and few top-notch graduates are interested in embarking on a career in such a volatile field.

Read the whole thing.

My friend David sends along this Financial Times story about how various factors are forcing a fundamental shift in supply chains. Excerpt:

Manufacturers are abandoning global supply chains for regional ones in a big shift brought about by the financial crisis and climate change concerns, according to executives and analysts.

Companies are increasingly looking closer to home for their components, meaning that for their US or European operations they are more likely to use Mexico and eastern Europe than China, as previously.

"A future where energy is more expensive and less plentifully available will lead to more regional supply chains," Gerard Kleisterlee, chief executive of Philips, one of Europe's biggest companies, told the Financial Times.

The story goes on to talk about how the economic downturn, plus concerns about climate change (and resulting new government regulation) are driving this. What seems implicit in Kleisterlee's remark, but doesn't get mentioned in the FT piece, is peak oil.

[An aside -- last week in Alaska, I met an oilfield worker from the North Slope, who asked me what I thought about peak oil. I didn't want to get into an argument, so I gave a noncommittal answer. "Well, up on the slope, we all know it's real," he told me. "Alaska is screwed." We had an interesting conversation from there.]

Anyway, David says that the point I raised in the earlier post about how the military accepts climate change as a clear and present danger, even as many conservatives deny it, might also, per this FT story, be made about business.

Doug Leblanc sends this link to a fascinating and unsettling series of book excerpts on the Forbes.com site about the road to $20 a gallon gasoline, and what, in author Christopher Steiner's view, is likely to happen to America along the way. And don't fool yourself, gas prices will be going up -- way up. The precipitous fall from last summer's $5 a gallon shocker was because of the global financial collapse. As the economy recovers globally, demand for petroleum will naturally increase, and it is extremely unlikely that supplies, even from newly discovered fields, will be able to meet demand.

But contra James Howard Kunstler, Steiner believes this massive disruption need not be a catastrophe. From the introduction:

The mounting cost of gas will dictate cultural changes, housing changes, civic changes, education changes--it will leave nary a spot on the globe, or how we live, unchanged. Not all of the change we face is gloomy. In fact, many people's lives, including many Americans' lives, will be improved across a panoply of facets. We will get more exercise, breathe fewer toxins, eat better food and make a smaller impact on our earth. Giant businesses will rise as entrepreneurs' intrepid minds elegantly solve our society's mounting challenges as gasoline prices inevitably rise, changing the world economy and our lives forever. The world's next Google, the next great disrupter and megacompany, could well be conceived in this saga. It could be a battery company, a breakthrough solar outfit or a radically innovative vehicle manufacturer. This revolution will be so widespread and affect so many that it will evoke the Internet's rise in the late 1990s.

But this revolution will be even bigger than that. The Internet allowed us to buy a book online, to peruse information at will and with speed. The rising price of gasoline, however, will reshape your house, your car, your town, your stores, your job, your life. America has never seen so great an innovation spur as escalating petroleum prices. This tale will bring with it all the global impact of a World War and its inherent technology evolutions--minus all the death. Some people even welcome oil's coming paucity and expense as one of humankind's grand experiments. And, in fact, it will be so. The future will be exhilarating.

Well, maybe so. One certainly hopes so. Steiner says that at $6 a gallon, we'll all have to walk and cycle more, and so will start to get thinner and in better shape. (Nice ... but good luck with that in Dallas in the summertime, and good luck as well to people in rural America who have to drive miles for daily supplies).

It's harder to find an up side for the airline industry, or any of us who like travel, when gas hits $8/gallon. Excerpt:

In 2003, a mere six years ago, jet fuel made up less than 13% of airlines' costs. When gas prices reach $4 a gallon, as they did for part of 2008, jet fuel makes up 40% of carriers' costs. That's an astounding number. Almost half of airlines' costs--including the price of planes, ground crews, pilots, insurance, airport fees, maintenance--comes from the hydrocarbons needed to keep these sleek, purring machines aloft. When gas reaches $8, carriers will be throwing down 60% of their operating costs for fuel. That cannot be sustained. The ultimate contraction awaits.

With $8 gasoline, the American domestic network will contract to 50% of its current size.

And when gas hits $14/gallon, Steiner maintains, say goodbye to big-box stores like Wal-Mart, and say hello to the rebirth of small-town America. Excerpt:

Kenneth Stone, an economist at the University of Iowa, has made his name documenting the change that Wal-Mart brings to rural communities. His studies that detail the destruction of Iowa's Main Streets proved to be a keystone for many of the controversies that surround Wal-Mart's business plan. Wal-Mart first invaded Iowa in 1982. It marched across the state during the next 10 years. According to Stone, Iowa lost 2,200 of its retail stores from 1983 to 1993. That includes 37% of the state's grocery stores, 43% of its men's apparel stores and 33% of its hardware stores.

Wal-Mart, in effect, turned these towns inside out. Most small towns once had central business districts surrounded by homes built within five to six blocks. This kind of town design, simple as it is, manifested during a time when the car was not king. Automobiles may have existed, but we hadn't yet wrapped our lives around their shiny chrome accoutrements. There was always a core to the town, a heart, from which homes radiated. Wal-Mart transplanted that heart into a tin-roofed warehouse several miles from town, where real estate was cheapest and zoning nonexistent. Two things happened. First, people shopped at Wal-Mart instead of Main Street, which choked Main Street's revenue and caused most of its stores to disappear. Second, the town's development sprawled toward Wal-Mart, creating a thick slice of splurb between the old, centralized town and the out-in-the-boonies Wal-Mart. But it's difficult to blame people for shopping at Wal-Mart instead of Main Street when Wal-Mart's prices were more than 20% cheaper, on average, than those of the town's other stores.

This massive store of foodstuffs, trinkets, furniture and household staples under one 200,000-square-foot roof will prove to be an idea that worked only during a span of three or four decades.

I find it hard to imagine life in places like Dallas, which are so beastly hot most of the year, in the absence of relatively inexpensive air conditioning. It could be done, but it would require an almost-unthinkable retrofit of our housing and workplaces -- and an equally difficult recalibration of what we're willing to endure in terms of personal discomfort. Old-timers here, though, grew up like that. It can be done.

On the other hand, what on earth are the folks who live in the north, e.g., New England, going to do about heating their homes through the winters? That's truly life-threatening -- and I wonder if there are affordable and practical alternatives to the way they now heat their homes (fuel oil). Eh?

The Oil Drum staff agrees that 2008 was the year the world reached peak oil.

Question: could the drop in world oil output be attributed to falling demand because of the price collapse and recession? Why pull more oil out of the ground to put on the market if demand has dropped? Am I missing something?

Don't get me wrong, I believe in peak oil, but I'm not sure that it explains the 2008 decline. I get people who come up to me from time to time to say, "What happened to your peak oil, ha-ha? Gas is $2 a gallon again." Yeah, say I, but we had to have a massive recession to make that happen. When we recover, watch what happens.

[H/T: Andrew Sullivan]

Remember Texas oil mogul T. Boone Pickens' ambitious green energy scheme, the Pickens Plan? Whatever happened to it? Texas Monthly reports that it has collapsed, along with the price of oil and the stock market. Says T. Boone: "For now, the wind stuff is deader than hell."

Whatever the merits or demerits of the Pickens Plan, I think it's safe to say that as long as the price of oil is relatively low, and the country is suffering intense economic pain, there will be minimal political will to make major shifts to green energy (this may well become Obama's first big disappointment to his base). Eventually the global economy will recover, and the price of oil will shoot through the stratosphere again. And then where will we be? (To say nothing about the environment).