Peak Oil, or Peak Meme?

It looks like the peak oil idea is trying to stage a comeback. There are more and more articles arguing that it’s time to take a look at it again, mostly from people who wrote in support of the concept previously: Kurt Cobb, for instance, and Richard “The Party’s Over” Heinberg has a piece out on it too.

If you haven’t heard of it, peak oil was an idea that gained wide (though not quite openly mainstream) credence during the oil price build-up of the 2000s. The idea boils down to the extremely simple and reasonable proposal that, since oil is a finite resource, if we continue trying to extract more and more of it there will eventually come a time when we can’t, at least not at prices that don’t crash the economy.

In essence, peak oil warned that long before we actually ran out of crude, we would enter an increasingly unpleasant period of stagnant and then declining production that would present major complications for any attempt to continue our energy-, transportation- and technology-intensive modern standard of living–that is, unless an alternative energy source to oil were scaled up extremely quickly.

What happened next, though, is already touted as a resource economist’s almost textbook example of demand stimulating innovation and human ingenuity, thereby increasing supply and place-kicking the ghost of Malthus into the far future. With the coming-of-age of hydraulic fracturing technologies, and the arrival of prices stably above $80/barrel that made them potentially profitable to deploy, vast deposits of oil and gas locked in shale rocks began to be developed at a break-neck speed. The Bakken, Eagle Ford, Permian Basin, and Marcellus shales became big, often front-page news, having been known only as curiosities to geologists for decades.

Fracking technologies had likewise been known for a long time—since at least the 1940s—but prices had never been high enough long enough to work out the bugs and drive such massive deployment. And massive it was: from 2006 to 2015, crude production in North Dakota’s Bakken Formation soared from a few tens of thousands of barrels a day to well over a million–and in the Eagle Ford, even higher.

There was talk of “Saudi America” and plaudits all around; peak oil, in the minds of the vast majority of the media, had been vanquished, the very notion dismissed as a “waste of energy”, a meme based on shallow thinking and a grievous oversimplification of how oil is actually demanded, discovered and produced. Interest in the subject duly plummeted as the number of Google searches for the term cratered (something intolerable for any self-respecting meme), and was perhaps best symbolized by the archive-ification of that one-time beehive of peak oil analysis, the Oil Drum. The principal voices went their separate ways, and for the most part quietly dropped the subject, brushing it off for occasional defiant reaffirmations.

I confess I was fascinated by peak oil, and somewhat terrified of the possibility that the predicted energy shortage was nigh. I watched oil prices and gas prices steadily claw their way to undreamt-of highs, with a mixture of dread at what it could mean in real life, and that abstract thrill that comes of watching fate unfold from a vantage of privileged understanding.

Even after the winding-down of the movement (for want of a better word), I continued to periodically follow issues of energy production and scarcity and the writings of many of the peak oil principals. For me, despite the evident flaws in the models of the peak’s timing, the notion of endlessly growing consumption on a finite planet, though ingrained in our economic system and fundamental to our notions of general prosperity, seems like such a blatant absurdity that I have never able to let go of the idea that something eventually will have to give, and in a big (if slow) way.

Likewise, the crowing of technocrats and economists that “innovation” and “ingenuity” will surely and neatly solve any mess our mass short-sightedness happens to make for itself, has always seemed like a thought-terminating cliché. Certainly there are cases where a new technology has removed an obstacle just in time and embarrassed the pessimists–yet there are also plenty of cases where problems have made scant progress despite the efforts of the best minds, or have even deteriorated, without any clear saving innovation in sight (antibiotic resistance, nuclear fusion, and climate change come to mind). As much as the peak oil writers may have been guilty of special pleading to keep their faith in M. King Hubbert’s infallibility alive, the cornucopians always remind me too much of “The Fisherman and His Wife”, that Grimm Brothers story about a couple who, after freeing a magical fish, take its generosity for granted and end up with nothing.

Since then, the energy world has gotten even less simple. The Saudis opened their taps in mid-2014, crashing oil prices from $100 to about $30, in what’s generally considered a price-war gambit to drive the frackers out of business. Fracking, with its dependence on high prices, has indeed moved from boom to bust, with drilling rigs mothballed by the hundreds; the Bakken’s production trend reversed sharply since 2014, falling well below 1 million barrels a day as of this writing and creating what looks very temptingly like a peak. Ah, but a present-moment peak does not an all-time peak make. Despite the resultant palpable temptation for peak oil theorists to declare this price-induced downturn as “the death of the Bakken oil field”, a number of reports suggest that the frackers are there to stay, battening down and carving out all sorts of new efficiencies, and just waiting to break out again as soon as prices rebound.

Peak oil writers tended to be skeptical of shale fracking in 2006 and since because of the wells’ spectacular decline rates–as much as 90% decline in the first four months of production–which necessitate near-constant drilling to keep ahead of depletion. For a number of years, the fracking industry indeed showed it was equal to the challenge of outrunning this treadmill. But here my Malthusian acts up again: surely it is hard to have faith in any long-term solution to our energy needs coming from a resource that exhibits such declines, however ingenious it may be. Some claim these decline rates have now been reduced to 18%, though it’s not clear whether this is typical, or a special subset of wells, and that is still a pretty huge decline rate.

Whatever the price or decline rate, the new rustlings of peak oil all seem to center on concerns about the net energy of fracking, and its complex effects on the running of society.

Net energy, or Energy Return On Energy Invested (EROEI), though exceedingly difficult to quantify (it depends on tracking energy inputs all along the immensely tangled and ramified system of petroleum production) is a lot like peak oil itself in being one of those concepts that’s extremely hard to dismiss altogether, mock it as “unsophisticated” all you might. The point of net energy is simply that energy resources are useful to a society only insofar as they release more energy than it takes the society to extract them. The greater the energy release per amount of energy spent on extraction, the more energy there is to run other things. Critically, even if the market price of extraction seems to justify the effort, an economy that tries to subsist on energy sources below a certain cutoff will slowly starve, like a person who tries to live on those legendary negative calorie foods.

If you grant the importance of EROEI, it’s extremely tempting to adopt a model like that of Joseph Tainter, a favorite historian for peak oil writers: since EROEI represents the “free” energy available to drive a society and its institutions, it embodies in some broad systemic sense how elaborate and vast that society can become. The higher the overall EROEI of a society’s energy sources, the more it can afford to act weightlessly, as though energy doesn’t exist; with a high enough EROEI, it becomes possible to spend huge amounts of energy to run intensive transportation systems, build immense new architectural projects, support vast layers of complex institutions, entertainments, explorations, and so on, all while logging impressive growth numbers. Inversely, societies with low EROEI (pre-industrial, for instance), must spend nearly all the energy available to them on growing more food and handling other modest necessities of life; much of what’s left over is saved in case of natural disasters and so forth.

It is an elegantly simple conception, and I suspect correct in some ultimate sense, but for prediction it likely suffers from being over-simple. For, as if the accounting of energy inputs for energy production wasn’t complicated and contentious enough—even without considering potential shifts due to new technologies—deciding in a precise, value-free way what level of net energy is necessary to run a civilization like what we’re used to is a virtually hopeless task.

This hopelessness, in turn, has been twisted inside-out by many, to argue that the prohibitive trouble of exactly measuring net energy and modern society’s energy requirements means that there is no validity to considering such constraints, even in principle. As a result, a competing meme has grown up to the effect that the expansion of renewables and greenhouse-gas cutting measures means we are headed not to troubles with oil supply, but to “peak demand”–a point where the economy simply decides it’s had enough with oil, thank you very much, and goes off on its merry way, with growth and energy production virtually uninterrupted, perhaps as early as in the next 10 years.

This seems a bit Panglossian, given that oil and natural gas consumption have continued to rise in tandem, that fossil fuels continue to produce about 80% of the world’s net energy, and that solar power still only provides about 0.9% of the world’s electricity. Nevertheless, as with most Panglossian ideas, it does have the advantage of being much more pleasant to think about.

As important as fracking has become, and regardless whether it’s really “peaking” yet or not, it’s essential not to forget the state of oil discovery and production outside of it, often called “conventional” oil, which still supports the vast bulk of the globe’s now 95 million-barrel-a-day petroleum habit. The news in this area is not wonderful. It turns out that conventional production has remained stagnant over the last 10-12 years: nearly all new net global oil production in that time has been due to fracking in the US and Canada.

Depletion is an increasingly serious issue too, as is the growing cost and difficulty of finding new oil. The Telegraph recently reported that wells “…are depleting at an average rate of 9pc annually. Drillers are not finding enough oil to replace these barrels, preparing the ground for an oil price spike in the future and raising serious questions about energy security”. In a similar vein, there’s the not-unconcerning fact that 2015 officially saw the lowest global rate of new oil discoveries in the last 70 years, bringing serious concerns about supply problems ahead.

Also, there’s the curious fact that no one seems to be making any money at this. Quite the opposite: the frackers have racked up trillions in debt, and even the larger, more traditionally profitable oil companies are extremely hard-pressed.

Even given these difficulties, it might seem a strange time for the peak oil idea to reawaken, given that prices are low, demand relatively slack, and total production still near all-time highs. Prices were artificially suppressed by the Saudi attempt to glut the market, and so now no one can earn a profit (including the Saudis); what is surprising about that? Except that today’s Brent crude prices around $50 aren’t really that low compared to what they’ve been historically—say in the 1980s and 90s—even adjusting for inflation. Only in comparison to the huge spikes of the 2000s, and the huge exploration costs that are now baked in, do they seem really low. In addition, the debt problems of fracking at least seem to predate the price drop itself. Finally, the stagnation in conventional production actually began around when oil was up around $100; why wasn’t even this enough to stimulate new production?

In this light, the struggle to develop significant new conventional resources looks more concerning. It seems very plausible that were the Saudi price war on shale not artificially lowering prices, the situation would be no less dysfunctional—just dysfunctional with high prices crushing demand, instead of low prices crushing producers.

The question of economics has become paramount in the newer peak oil discussions, particularly in the tense interplay between scarcity as defined by the markets, and scarcity as defined by EROEI. Next post, I’ll try to trace out some thoughts on this, less in terms of the technical questions of oil production (however vital those are), than in the wider view of some of the ideas, motivations, and perhaps psychology that are behind it. Peak oil is many things to many people, but I hope to explore whether this new incarnation is really just another meme, or armchair speculation—or something more.

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