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.