The Fed and peak oil
7 Jul, 2009 01:54 pm
Laurel Graefe, a senior economic researcher working for the Federal Reserve Bank of Atlanta has written an excellent overview of peak oil, ?The Peak Oil Debate?. I consider this a must-read piece, as much for armchair oil experts as beginners, and as much for who published this as what it contains. This should be very high on your list of ?brother-in-law? documents, the ones you can safely recommend to co-workers, neighbors, or, well, your brother in law.
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I should also mention that if you’re one of those economist-haters who have seizures when I or one of my fellow dismal scientists does the “on the other hand…” thing, then you should probably read this only under the influence of a suitably calming libation. I thought Graefe used this technique properly, in that she highlighted some of the rampant uncertainties involving oil, but at no point did I think she was hiding behind a false question to escape taking a position.
The notable details, in no particular order:
The paper talks about peak oil, by that name, without condescending to prefacing it with “so called” or anything similar. I know this sounds like a triviality, but I think it’s critical to de-demonize the term so that politicians and voters can talk about it without all the baggage that the term has grown over the years.
Graefe tells us on page 1 that “The term ‘peak oil’ is not about running out of oil; oil; we will likely have oil to pump for generations to come. Peak oil refers instead to the inevitable point at which the world’s energy output can no longer increase, and production begins to level off or decline.
She gives the reader an excellent overview of the kinds of oil we use–conventional vs. unconventional, proved vs. probable vs. possible reserves, deep sea reserves, etc.–and never strays far from two critical details, the cost and the role of technological advancement in extracting various kinds of oil.
She mentions on page 7 what I consider the key detail in our run-up to peak oil: “Still, despite their drawbacks, nonconventional resources will likely play an increasingly important marginal supply role in the future as reserves that are easier and cheaper to produce become depleted.” This is the mechanism that (1) will impact human beings and (2) give us the needed incentives to transition away from oil, both via increased prices. The view, sometimes implied quite subtly in online conversations, is that we’re going to hit a wall at full speed when we reach the peak. That characterization is as wrong as it is cartoonish.
Graefe also talks candidly about Matt Simmons’ number one issue (and references his work in a footnote), the lack of transparency in oil reserve numbers.
In talking about oil prices in 2008, she says:
However, the price spike also had an upside: Consumers began to drive less and conserve more, while businesses and producers set out ambitious plans to invest in energy-saving technology and upgrade outdated equipment. Alternative (both nonconventional and renewable) sources of energy, which historically had been price prohibitive, emerged as attractive substitutes to $145 per barrel oil and gasoline above $4 a gallon. World oil demand plummeted as record prices and a worldwide economic slowdown forced consumers to cut back on their energy use. But just as talk of a new green era was entering the mainstream, crude prices retreated as quickly as they had come. I found this notable simply because of the explicit comment that driving less and conserving more were positive developments. This is a mindset that can only help us in the coming years.
The last three grafs of the paper deserves quotation in full (emphasis added):
This adaptation process—which involves using more renewable resources and conservation and developing new technology and processes to better access hydrocarbon deposits and more efficiently extract and refine nonconventional sources—has already begun. But the road to the future energy balance—one with dwindling amounts of conventional oil—is far from mapped out. The supply of energy as we have known it is in the process of tra nsition. Today’s “easy” conventional oil that the world relies upon as a primary energy source is being depleted, and, regardless of the exact timing of peak oil production—be it this year or fifty years down the road— the world faces the challenge of adapting to a new model of energy supply. Although the peak oil literature tends to concentrate heavily on the scenarios of peaking world oil production, the true underlying issue is a fear that the transition from conventional oil to substitutes will be expensive and chaotic, leaving insufficient time for supply substitution and adaptation.
This adaptation process—which involves using more renewable resources and conservation and developing new technology and processes to better access hydrocarbon deposits and more efficiently extract and refine nonconventional sources—has already begun. But the road to the future energy balance—one with dwindling amounts of conventional oil—is far from mapped out.
It is possible that the world’s vast endowments of hydrocarbon resources will be heavily relied upon to answer this growing call for substitutes for the conventional oil supply. However, there is also potential for an energy future largely diversified away from hydrocarbon use. Most likely, future energy sources will be a combination of the two. Perhaps the peak oil literature would better serve society by being more solution-oriented, focusing on discovering the best way to transition to a world with less conventional oil rather than locking horns about discrepancies in terminology.
Do I have to say how delighted I am to see this emphasis on the timing of the transition and her rebuke of the more obsessed members of the peak oil community? I didn’t think so.
To be sure, I think there are some problems, or at a minimum, things I would have preferred to see done differently in this paper.
No mention of Chris Skrebowski’s bottom-up analysis of world oil supply? Given his methodology and background, not to mention his 2011 prediction, I think this stands out as a conspicuous omission.
It’s “Fatih Birol”, not “Faith Birol” (page 12). Death to spellcheckers!
My biggest concern is that the overall paper is so controlled in tone that a newcomer to the field who hasn’t read Simmons, Skrebowski, Aleklett, or any of the other rational people writing about peak oil could jump to the conclusion that, “Nobody knows what’s going to happen, so I’m not going to change anything or worry about it. Things will work themselves out.” That’s precisely the mindset that will be most damaging, since there is still quite a lot people can do individually and through their influence over concentrations of power (via their vote and spending patterns) before they’re forced to take action by much higher oil prices in just a few years.
Read “The Peak Oil Debate”.
Originally published on The Cost of Energy
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We produce oil in the same way a vampire produces blood! 95% of 15 predictions see a peak between 2008 and 2010 at 77 - 85.0 mbpd - so we are most likely at the peak about now. Whether its this or next year (it won't be fifty years) is not important because we have wasted too much time already.
We cannot afford any more time wasting by vested interests or lobbyists, e.g. the CAFE plans are pathetic and have been watered down.
We should have an escalating tax on gas that is revenue neutral, i.e. the money is handed back to everybody, e.g. to pay for a proper health care system like in most other countries. This would soon encourage people to avoid gas guzzlers. Oil is too valuable to be burnt in trips to the mall to buy more plastic rubbish that will be junked.
1. It's a very good thing that very serious people, from a very serious institution, are talking about peak oil as a topic worthy of more than casual dismissal, which is what the overwhelming number of people in the US do. Yes, there's a lot we can and should and must do about peak oil, but before we get the proper public policy we need a vastly better and broader awareness of our situation.
2. It's also a very good thing that the author of this report took some not-so-veiled swipes at the Internet wackjobs, the people for whom I coined the term Apocalypticon. I've seen the syndrome many times: I give a presentation and tell newbies in detail about "peak oil", they Google it, and they see dozens of sites full of people gleefully dancing on civilization's grave and making all manner of ridiculous predictions. The newbies immediately dismiss everything I've told them plus the entire topic of peak oil as just another one of those Internet urban myths.
To be painfully clear: I am convinced that peak oil is real, imminent, and an enormous challenge. But there's a cavernous gap between the Cornucopians' "nothing to worry about here, move along" view and the Apocalypticons' "we're all going to die a miserable, deserved death in less than 10 years" idiocy. Reality, including all the ways in which we'll respond to peak oil, lie in the middle. The extreme views are bizarre fantasies, a waste of our time, and dangerous distractions that we can't afford.
First of all we have to change exploration technology to increse discovery rate significantly:
http://binaryseismoem.weebly.com
A. Berg, Ph.D
My two favorite sites for learning more about this topic are http://theoildrum.com and energybulletin.net.
I suggest checking both of them out, very professionally done.
The DOCTRINE OF PERPETUAL GROWTH of the human population and the global consumer economy on Planet Over-Birth Earth, a HOST ORGANISM of finite space and finite resources, cannot be sustained much longer. Perpetual growth in a closed looped system (Earth) is not progress. It is cancer. Full blown cancer!
So... we ignore the freight train? Eh? Well Old Coyote Knose... WHERE THERE IS NO INSIGHT, THE PEOPLE PERISH!
Regarding your comments:
"It's also a very good thing that the author of this report took some not-so-veiled swipes at the Internet wackjobs, the people for whom I coined the term Apocalypticon. I've seen the syndrome many times: I give a presentation and tell newbies in detail about "peak oil", they Google it, and they see dozens of sites full of people gleefully dancing on civilization's grave and making all manner of ridiculous predictions...
But there's a cavernous gap between the Cornucopians' "nothing to worry about here, move along" view and the Apocalypticons' "we're all going to die a miserable, deserved death in less than 10 years" idiocy. Reality, including all the ways in which we'll respond to peak oil, lie in the middle. The extreme views are bizarre fantasies, a waste of our time, and dangerous distractions that we can't afford."
So let's see here. On the one hand, you claim to believe that a peaking of the primary source of energy in the US is imminent; on the other hand, you say that those who believe this energy peak is going to have grave consequences for the survival of society as we know it are "wackjobs." Very precise term, by the way. And I'm impressed with how you didn't waste valuable time offering specifics about how these "wackjobs" are wrong in their thinking. Better just to condemn them with an insulting label.
Allow me to put things in the simplest terms possible: In the US, oil equals food. In the US, oil equals pharmaceuticals (medicine). Not to mention that the majority of the US infrastructure AND economy is reliant on the concept of not just a plentiful oil supply, but a plentiful inexpensive oil supply. Yet removing oil supply from the equation, at least in your estimation, doesn't mean dire consequences for civilization? Millions of people are suddenly not going to need to eat? Scores of people who are sick and / or have chronic medical conditions are suddenly not going to need medicine treatment?
Please explain to me and others who may be leaning "wackjobs" how your magical society continues on its way without widely available survival necessities. Thanks in advance for educating us.
If the Fed is setting monetary policy based on incoherent fluff such as this, then we are quite simply doomed.
We're mostly a bunch of spoiled little whiney brats... wow the level of denial people have with this situation is astonishing! When the yuppies and the yuppie wanna-bes see their cushy go-go lifestyle slipping away there is going to be a CRAZY period. What?! No Direct TV?! What?! No Wal-Mart?! What?! No Internet?! What?! No yuppie mobile... no McMansion... What?!?!?! I have to grow my own food and be part of a small community of people working together?!?!?!?!?! NOOOO!!!!!!!!!!!
It's going to be time when the reality sinks in and the desperation of society to cling on to that which is disappearing which will be the craziest.
Then it's going to be a surreal depressing time I think... when we realize we had it all and pissed it all away like a bunch of drunken idiots.
Just imagine... cars everywhere... technology everywhere... but no way to use it. It's rotting, rusting away... but everywhere...
Retail ruins... empty skyscrapers... scavengers... how pathetic indeed.