I have been somewhat troubled by the whole concept of “peak oil” in that I think it is misapplied as to what may actually be going on. Below are some excerpts from Doug Henwood’s newsletter Left Business Observer, Issue No. 111 — not available for reading on the net, sadly:
No doubt we will run out of [oil] someday. But there’s still 40 years of it in the ground — and the industry isn’t trying that hard to find more of it. Worldwide, about 2,700 rigs are drilling for oil; that’s doubled from the lows of 2000, but it’s still less than half the peak of 6,148 in 1982. Major oil companies have kept their exploration budgets in check to please their stockholders, who prefer high profits to busy rigs. Thanks to that tightfistedness, expertise and equipment are now in short supply. The number of petroleum engineers in the U.S. — historically the home to much of the world’s talent — is half what it was 20 years ago. These human and material shortages are driving up costs and slowing down fresh exploration.
I’ll add here that this applies to refining capacity, too. Oligopolies/monopolies always prefer raising prices to their customers to actually providing real service.
Henwood goes on to write about the politics of it, specifically,
…[the] greens have embraced it, apparently hoping that we’ll react rationally, and finally come to our senses about SUVs, sprawl, and melting icecaps — providing a nice shortcut around messy political agitation. That’s very optimistic. It could be that fear of peak oil might inspire a furious rush to find more oil — and make dirtier fuels like coal and nuclear seem more attractive.
Indeed, what I’m hearing from the pols is precisely that scenario — ANWAR, coal and nukes.
So why go to war? To protect the cheapness of the supply and thus uphold “shareholder value.” And to pass that cost onto the working class, in taxes on their already meager incomes, and in their blood and the blood of their young — a little business secret called “externalization of costs.”
But there’s still 40 years of it in the ground
And thirty-five years ago there was still 75 years of it in the ground. (Estimates of the time–the looming oil crisis is no news to me). Of course more oil was discovered later, but also, our rate of use went up–it about cancels out.
So here we are 35 years later, and seemingly 35 years was used up, leaving 40 years left–CURRENT estimates.
It looks to me like we are on schedule. 🙁
After the floundering of Nixon, and the rejection in Congress and at the polls of Carter’s plan for conservation and alternatives, a deal was cut with the Saudis on how to manage the world’s (and America’s) oil supply without disrupting the economy. The Saudis in essence became America’s national bank, and the American dollar was basically put on the oil standard. The value of the dollar was maintained by pricing oil in dollars, and by setting a price that was neither too high nor too low. The key point is that for this scheme to work the Saudis had to be willing to cut their own production to maintain prices, and able to make good any shortfalls in production by any other producers and so hold prices down–and they did.
Until this year. For the first time, despite adamant promises, the Saudis are not meeting their own stated production quotas, and prices are “uncontrollably” rising. The suspicion is that the Saudis’ largest and best oil field, which is also by an overwhelming margin the world’s largest and best oil field, is now maxed out. There is still oil there–perhaps half the original amount–but oil will never be pumped out any faster than it is being pumped right now.
What about new oil? Drilling for oil is a gamble, and like all gambles, if you do it enough times you can begin to accumulate data and do statistics. What the statistics on oil drilling show is this: New finds are still happening, but they are smaller and harder to reach. If you believe the statistical model, it says that we have already found most of the oil we are ever going to, only a relatively small amount remains undiscovered, anywhere in the world.
Put another way: The great oil fields of Saudi Arabia were discovered in the 1930’s. These fields supply the large part of all the oil used today. The North Sea fields were discovered in the 1960’s, and production has now tipped over to enter decline. ANWAR was discovered when? A decade ago? There is enough oil in the whole of ANWAR to run the US for four years.
War is certainly the externalization of business cost, and the only scenerio for the Iraqi war that remotely makes sense is that it was an attempt to seize the Iraqi oil fields (which are huge and now rival the half-depleted Saudi fields) and to make sure that oil continued to be priced in dollars–(Saddam was planning to switch to Euros)–so that as the bank of Saud was (gradually) phased out a bank of Iraq could be phased in and keep the oil standard for the dollar afloat. Under this scenerio the Iraqi war has in fact already failed, and the oil crisis we are seeing now is happening ahead of schedule–due as much to political and military bungling as to an actual tightening of world oil supply. That is, because the war did not end in victory and control, but continues in endless insurgency and chaos, Iraq is dropping out of production, rather than coming on line and compensating for the oil the Saudis are not supplying.
But don’t monopoly producers like to raise prices to what-the-traffic-will-bear? Yes, but there are no sudden monopolies, and it is not just OPEC that is a cartel. The oil companies have been cartelized for decades–there have been no free markets in the industry in my lifetime–nor in the lifetime of anyone now living. As you hint, this really ought to be properly game-modeled, which is beyond my skill, but I do think we can at least ask a question: Are things changing now because the game has changed, or because the circumstances have changed? My own impression is that changing circumstances are the driving force: Realizing that there is less oil to be found, realizing that the physical infrastructure of oil production only has to last thirty more years, the oil companies have changed from a strategy of searching and drilling and building capacity to a strategy of extracting profit from what exists.
This is combined with the fact that too high a price for oil was already shown in the Nixon years to cause the economy to stall and would ultimately cause collapse. All through the Reagan, Bush I, and Clinton years the high prices of the Nixon years were avoided. Why are prices being allowed to rise now? Choose your own theory, but I think it is because collapse can no longer be avoided. To the big players who have been running the US government for the last quarter century, fighting price rises that are inevitable makes no sense.
True, Greens are surely optimistic to think Americans will behave sensibly. Does a drunk at the end of his binge behave sensibly? Does a drug head on his jones behave sensibly? Americans are quite literally addicted to cheap energy, and will likely behave worse than anyone can imagine.
But remember, the Greens are only trying to get us to do now what we should have started doing in 1980. Is it now to late? Sure, and it will only get later. Having eliminated the good possibilities from our future, Americans now face an array of bad possibilities that are not at all equal. Even now, I think it is theoretically possible for most of the population of North America to survive–but they don’t have to.
The choice–in the large–of life and death has not yet been made.