“Peak Oil Day” dodges political roots of crisis

A blogger on Daily Kos a few days ago promoted a petition to make July 11 “Peak Oil Day,” a crusade apparently launched by peakster Richard Heinberg of the Post Carbon Institute. Why July 11? Heinberg, quoted at length in the post, explains:

On July 11, 2008, the price of a barrel of oil hit a record $147.27 in daily trading. That same month, world crude oil production achieved a record 74.8 million barrels per day.

For years prior to this, a growing legion of analysts had been arguing that world oil production would max out around the year 2010 and begin to decline for reasons having to do with geology (we have found and picked the world’s “low-hanging fruit” in terms of giant oilfields), as well as lack of drilling rigs and trained exploration geologists and engineers. “Peak Oil,” they insisted, would mark the end of the growth phase of industrial civilization, because economic expansion requires increasing amounts of high-quality energy.

During the period from 2005 to 2008, as oil’s price steadily rose, production remained stagnant. Though new sources of oil were coming on line, they barely made up for production declines in existing fields due to depletion. By mid-2008, as oil prices wafted to the stratosphere, every petroleum producer responded to the obvious incentive to pump every possible barrel. Production rates nudged upward for a couple of months, but then both prices and production fell as demand for oil collapsed.

Right. Contrary to what the Peaksters had been predicting. As we have pointed out.

Since then, with oil prices much lower, and with credit tight to unavailable, up to $150 billion of investments in the development of future petroleum production capacity have evaporated… It may not be physically possible to turn the tide at this point…

Maybe not. But this is a virtual acknowledgment of what we’ve been saying all along: oil prices are (for now) determined by politics, not geology.

We are now approaching the first-year anniversary of Peak Oil Day. Where are we now? The global economy is in tatters, yet oil prices have recovered somewhat (they’re now about half what they were in July 2008). World energy consumption is down, world trade is down, the airline industry is shrinking, and most of the world’s automakers are on life support.

It is too late to prepare for Peak Oil—a year too late, in fact. Now the name of the game is adaptation. We are in an entirely new economic environment, in which old assumptions about the inevitability of perpetual growth, and the usefulness of leveraging investments based on expectations of future growth, are crashing in flames. Even if economic activity picks up somewhat, this will occur in the context of an economy significantly smaller than the one that existed in July 2008, and energy scarcity will quickly cause most green shoots to wither.

You’d think by now these guys would have figured out that predicting the future is a dangerous business. We are not anticipating a robust recovery, but the question (for now) remains one of control of oil—not “energy scarcity.” There are still vast resources that have not been brought on line—from Iraq to the Caspian to the Amazon. But the effort to bring this oil under imperial control—especially via the Iraq adventure—has meant a hemorrhage of the national wealth of the world’s biggest economy. This has more to do with the current econocataclysm than the specter of “energy scarcity.”

It is impossible to say what will happen in the future with regard to oil prices. Clearly, very high prices kill demand by undercutting economic activity. Thus it is possible that the barrel price of petroleum may never break last year’s record. On the other hand, if the value of the dollar were to collapse, then the sky’s the limit for prices in dollars per barrel.

A wise hedge. The whole time the Peaksters were pointing to the soaring prices as vindication, OPEC was pumping the stuff out of the ground like crazy in a fruitless effort to bring pirces down. Since last fall’s crash, OPEC has dropped production in an effort to lift prices. Once again: politics, not geology.

It is easier to forecast the oil supply trend: though we’ll see level-to-rising production temporarily from time to time, in general it’s down, down, downhill from now on.

Even though Peak Oil is now in the past, its annual commemoration on Peak Oil Day may serve an important purpose by reminding us why our economy is shrinking, and by focusing our thoughts on ways to facilitate the transition to a post-petroleum world.

What are some appropriate ways to commemorate Peak Oil Day? I’d suggest spending time in nature, engaging in a 24-hour oil fast, or organizing a neighborhood bicycle parade and solar-cooker bakeoff.

Mark your calendar.

We’re all for bicycles and a transition to a post-carbon economy. But a big problem with the Peaksters’ geological determinism is that, blind to political root causes, it dodges the political imperatives for the transition. The oil economy fuels endless war and is bringing on cataclysmic climate change. These would be more than sufficient imperative for the post-carbon transition even if we weren’t running out. By making the issue “scarcity,” the Peaksters reduce the argument to a sterile debate between experts, with the public—and issues of ecological survival, and war and peace—relegated to a sideshow. And when Peaksters (or Apocalyptoids or Malthusians) wager predictions against the petro-Utopians and Cornucopians, the results can sometimes be counterintuitive—as we have seen.

Meanwhile, the New York Times, in a front-page story July 6, “Swings in Price of Oil Hobble Forecasting,” provides some words of caution for the crystal-ball set:

The instability of oil and gas prices is puzzling government officials and policy analysts, who fear it could jeopardize a global recovery. It is also hobbling businesses and consumers, who are already facing the effects of a stinging recession, as they try in vain to guess where prices will be a year from now — or even next month.

A wild run on the oil markets has occurred in the last 12 months. Last summer, prices surged to a record high above $145 a barrel, driving up gasoline prices to well over $4 a gallon. As the global economy faltered, oil tumbled to $33 a barrel in December. But oil has risen 55 percent since the beginning of the year, to $70 a barrel, pushing gas prices up again to $2.60 a gallon, according to AAA, the automobile club.

“To call this extreme volatility might be an understatement,” said Laura Wright, the chief financial officer at Southwest Airlines, a company that has sought to insure itself against volatile prices by buying long-term oil contracts. “Over the past 15 to 18 months, this has been unprecedented. I don’t think it can be easily rationalized.”

The problem, ultimately, is not scarcity. It is petro-oligarchical rule.

See our last post on the struggle for global oil.

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  1. BS
    The problem, seems to me, is someone is too much of Alex Jones fan who has to spin everything into an Endgame conspiracy rather than deal with the even scarier problem of limits to growth.

    1. How about a little clarity?
      If you think I’m an “Alex Jones fan,” you are way off base. And nothing I wrote above in any way indulges conspiracy theory or denies that there are “limits to growth.” (Unless you think the notion that the Iraq war has a little something to do with oil is a “conspiracy theory.”)

      Try again.

  2. What’s the difference?
    I agree with aspects of your arguement, yet am still a “Peakist”.

    Firstly, are the two arguements mutually exclusive? I think not. In fact, you are really arguing the same side of the coin. The way I see it, “Peak Oil” means peak oil production, and peak oil production probably occured in July 2008.

    It makes no difference if the reason is geological, political, economic, logistical, or a combination of all four. We are extremely unlikely to surpass the production reached during that time, and we better start putting aside our differences and work on solutions together.

  3. Whistling in the Dark
    What the writer shows unmistakably is that he has no clue what Peak Oil is. Peak oil is just the term that describes what happens when finite resources – in this case oil – that involve some effort and expense to recover, are being produced and consumed. At some point, the easily obtained, cheaper resources are consumed and the resource becomes progressively harder and more expensive to produce. Peak occurs when, due to expense and effort, production can no longer be sustained at the highest level reached. Vicissitudes in the economy and other factors can produce deviations from the expected mathematical curve but those deviations are ‘noise’. Demand destruction, which is what we are seeing now, doesn’t affect the fundamental trends. It matters little whether peak was in July 08 or whether it comes in a year or two. It is coming and the larger the gap between sustainable production and demand the more serious the effects will be. Marginal economies are dying now and ours isn’t looking that healthy.

    1. “Noise” indeed
      The time-honored tactics of the Peaksters when called on their contradictions: 1.) accuse the other guy of not understanding what Peak Oil is; and 2.) dismiss everything that militates against your theory as “noise.”

      To which I respond: 1.) Then you guys better do a better job of explaining it, because I have pretty good reading comprehension; and 2.) maybe your vulgar geological determinism is the “noise.”

      As for “putting aside our differences”—building for the post-carbon transition means addressing ecological concerns and the permanent war. Making the only issue “scarcity” (especially when there are still vast untapped resources) is hurting its own cause.

      1. There is no difference
        Bill the only issue IS “scarcity” – you claim that it is caused by politics. I believe it is caused by the combined effects of geology, economics, politics, and logistics.

        Lets look at Mexico for a moment. As you know, Mexico is home to the supergiant Cantarell field which used to be the second largest oilfield in the world. In the late 90’s, production from the Cantarell field began to decline, so Mexico embarked on a massive Nitogen injection campaign. As a result of the nitrogen injection, Cantarell’s production increased to a peak of 2.1 million barrells/day in 2003. Between 2004 and 2008, production fell from 2.1 million barrels/day to 973,000 barrels/per day in June 2008. (and has since fallen further). Mexico’s next largest oilfield is Ku-Maloob-Zaap, which has been being developed since 2002 and is expected to one day achieve a production rate of 800,000/day. (Which, as you can see will never be able to replace the already lost production in Cantarell).

        So why has oil production in Mexico peaked?
        1) Politics – the Cantarell field has been mismanaged by PEMEX because of the massive withdrawl of funds to the government of Mexico. It could be argued that had Mexico’s oilfields been completely open to foreign investment and technology either more production rates could have been achieved, or that production could have been maintained longer.
        2) Logistics – the new Ku-Maloob-Zaap field is much more difficult to produce – and will never reach the production numbers of Chantarell
        3) Economics – as above, the replacement field is more expensive to produce, and the oil is of poorer quality.
        4) Geology – there are only x number of barrells of oil in Chantarell, and by trying to extract it as it fast as possible, we have hit a physical limit as to the rate at which that extraction can occur, AND we have produced so much that the production rate can only decrease from this point

        So what are some of the consequences of this?
        1) Vastly reduced revenues for the government of Mexico likely to cause (even more) political instability, reduced social programs, increased poverty, etc.
        2) Less Oil exports to the U.S. for example. This means that the U.S. needs replace its oil imports from either Canada’s oilsands (ecological concern), or the Middle East (permanent war), or the “vast untapped resources” elsewhere (also ecological concern AND chance of permanent war).

        Now lets look into Mexico’s future a little further. At some point, Mexico’s domestic production is going to drop below Mexico’s domestic demand. Are Chantarell and Ku-Maloob-Zaap going to be still producing? Absolutely! Just not at a sufficient enough rate to meet Mexico`s demand. At this point, Mexico will have to import oil from elsewhere. What used to be a net inflow of oil dollars is now an outflow of dollars for oil hurting thier already battered economy even furthur.

        What would your solution for Mexico look like (with your belief that it is a political problem that we need to fix)?
        How would your solution for Mexico differ from a “Peakster’s”?
        How does being a Peakster hurt the cause in this case?

        1. Itchy and Scarcity
          The only issue is scarcity? Bunk. Sources going dry and the industry having to expand to find new ones has been going on since the Rockefellers abandoned Pennsylvania for California over a century ago. The Mexican oil industry started out in Tampico, then moved down the coast to the Tabasco Littoral and offshore platforms like Cantarell some 30 years ago. The next planned thrust of expansion was into the Lacandon Selva of Chiapas, but this was put off by the 1994 Zapatista uprising. My proposed “solutions” (although I wouldn’t use so ambitious a word, personally) are vigorous solidarity with the Zapatistas, the peasant petro-resistance in Tabasco, and the movement to resist the privatization of Pemex under cover of extending production through foreign investment. Winning social control over fossil fuel resources is the first step in the conversion to a post-carbon economy. As long as oil remains a capitalist commodity, the inexorable imperative to exploit every last drop of it will persist. And the Peak Oil panic serves as convenient (if unintended) propaganda for the industry’s growth.

          1. Progress – but not the kind you think.
            So Bill we are making a little progress here.

            You acknowledge peak oil then as being more than just a theory. “Sources going dry and the industry having to expand to find new ones has been going on since the Rockefellers abandoned Pennsylvania for California over a century ago.” Sources going dry IS peak oil. As you said, peak oil production has been reached in Pennsylvania, California, Tampico, and Chantarell. Would you also acknowledge the North Sea?

            Did worldwide production peak in 2008? I say yes, and you say maybe – but if so, not because of geology.

            So lets get back to solutions. Your solution above is to win social control over fossil fuel resources. I will also assume that you would extend that solution world-wide? Nigeria comes to mind – would you have the income from the Nigeria oilfields be shared more equitably with the local villages, or would you have the oil industry leave altogether? What about the oilsands projects in Alberta? The indiginous people there have a (seemingly valid) claim that the increasing activity is starting to breach provisions in old treaties. Would you shut down the mining? What would you do with the thousands of laid-off workers?

            Your solutions would absolutely ENSURE that we’ve reached peak oil production!!! Or is that your goal?

            I would also like to know what a post-carbon economy would like using today’s technology! There is no such thing as post carbon!

            1. No, that’s not “Peak Oil”
              Surely you are not saying Peak Oil was achieved when the Rockefellers abandoned Pennsylvania. The term obviously applies to (as you say) worldwide production reaching a peak after which scarcity mandates decreasing production. I have no idea if we reached that point in 2008, and neither do you, and I don’t think it particularly matters. I didn’t say my “solution” is to win social control over fossil fuel resources, but I do consider that a necessary prerequisite for a solution. The question isn’t what “solution” I would impose on the petro-resistance in Nigeria. Whether they seek to chuck out Shell and Chevron entirely or merely win a more equitable share of the proceeds, this is a step in the right direction (although I much prefer the nonviolent tactics of the Tabasco movement). I stand in full solidarity with the First Nations of Alberta struggling to halt the oil sands development on their traditional lands. We must demand a “Green New Deal” that would put people to work building light rail and other such sustainable alternatives to the current model of petro-profligance.

              A minute ago you were proposing that we “work together” for the post-carbon transition. Now you tell me it is impossible. If you stopped thinking in terms of utopian “solutions” and more in terms starting to move in the right direction (sustainability, conservation, renewable energy) instead of the wrong direction (full speed ahead towards collapse), we might have something to talk about.

  4. the last time we went through this
    I was around during the 70s “energy crisis”, the last time we went through this, and the way that one played out was that everyone jumped up and down about how we were “running out of oil”, and spent a few years looking into alternate energy sources; then the oil prices went back down again, and everyone forgot all about it.

    The real trouble with the “peak oil” guys is that they’re inadvertently supplying Exxon and friends with excuses for years of record profits that might otherwise look like war profiteering.