When Will World Oil Production Peak? Before 2020. Probably within a decade. Possibly within five years. Published in the September 2004 Issue of Homebuilder Magazine Never again will we pump more than 82 million barrels per day. (T. Boone Pickens, 8/04, commenting on today’s production level) Worldwide oil production will flatten and then start falling by 2010. (Paul Appleby, British Petroleum senior economist, 1/96) Denial ain’t just a river in Africa, honey. (unknown) Next month is Energy Awareness Month. Herein, brace yourself for a hard dose of early awareness. A little soft music and a lot of hard liquor might be the best backdrop when you drill into the Darth-Vader-like subject of peak oil. Fish don’t worry about water and we don’t worry about oil. We virtually swim in the stuff. The world burns 82 million barrels a day, equaling the Colorado River’s flow through Glenwood Springs during July. The U.S., with 4% of the world’s population, guzzles 25% of that total. But there are limits to the growth in the world’s daily supply, and we’re sensing flashing red lights now about the end of the Cheap Oil Age. During the late 1980s, only a small group of people on society’s fringe (such as this writer) pondered the question: when daily world oil production would peak? Now you can buy a dozen books on the subject. A recent National Geographic cover story blared “The End of Cheap Oil” (6/04). The August 16th Newsweek magazine drilled into the peak oil topic under the banner “Gas Guzzlers’ Shock Therapy.” Google “peak oil” on the Internet and you can access 575,000 items. Those of you who experienced the twin oil shocks of 1973-74 and 1978-81 may expect that this year’s oil shock will turn into another come-and-go experience that morphs into yesterday’s news soon enough. Maybe. I wouldn’t bet on that. If peak oil means $100 oil (yes, we heard this back in the early 1980s) by or before 2010, it will massively shake up the world of the home-buying public. How? It’s worth pondering. What is “peak oil?” Peak oil is a term that describes the era when daily oil extraction from a particular area—an oil field, a nation, or in this case the world—reaches an all-time high, a peak. Thereafter we won’t run out of oil—we’ll still be pumping some oil in 2100. But daily oil will plateau, then roll over into decline. A growing population then competes for shrinking supply. Oil fields are like great athletes—John Elway, Michael Jordan, Carl Lewis. Early in life they achieve high performance. Over time, they work harder to maintain that performance, growing smarter, maximizing technique. Eventually, decline sets in. Elway, Jordan and Lewis can still put on a show today, but their era of world championships is history. Ditto U.S. oil. In 1950, the US produced roughly half the world’s daily oil supply. We were the world-class performer. Production grew steadily until 1970. Then we peaked, as a controversial geophysicist named M. King Hubbert predicted 14 years earlier. Today, we produce 44% less oil than in 1970, despite prices over 10 times higher. About half of the world’s oil-producing countries are near peaking, at peak or past peak. The list includes top 20 producers: the former Soviet Union nations—the all-time largest producer—peaked in 1988, Indonesia (1991), Australia (1997), Columbia (1999), the United Kingdom (1999), and Norway (2003). Mexico is close. Saudi Arabia recently announced that it’s increasing oil production. Terrific. But Matt Simmons, oil industry financier and energy advisor to the Bush Administration, studied Saudi Arabia last year and said earlier this year they’re likely approaching their peak. Saudis broke their silence to refute Simmons in the Wall Street Journal and the Oil & Gas Journal. We’ll see. But realize that when Saudi Arabia peaks, the world will have reached peak oil. When will peak oil happen? No one can predict the exact year of worldwide peak oil, since it will depend in large part on economic and political factors, not just geologic limits. And lack of good data, thanks to secrecy by OPEC nations, blindfolds us. (OPEC nations produce 38% of the world’s oil today yet hold roughly 75% of the world’s reserves.) So this is all educated guesswork. But we know much more now than in decades past. Most scientists and oil men who project a peak oil date foresee that peak between now and 2020. Increasingly the projections anticipate a peak between 2010 and 2015. A vocal handful of folks see this happening before 2010. In the late 1990s, my cohort Randy Udall and I guesstimated the peak within a plateau around 2013. (Dartboard alert.) Easy oil era over Newsflash: not all oil is created equal. The era of Big Easy Oil ended during the 1980s. We’re well into the harder-to-get oil era. There’s lots of oil in Alberta’s tar sands, but you have to dig it up or melt it out, so it’s a small tributary to the world’s oil river. Drilling for oil beneath 5,000 feet of water off Louisiana, Brazil and West Africa rivals space flight for expense and technical complexity. Drilling the last unexplored areas of Alaska’s disputed north slope might bring to market an extra million barrels a day; but that won’t happen for a decade and would only reduce our imports from 65% to 60% of consumption when it arrived. None of this is as easy as the oil we extracted from East Texas or the Middle East’s largest fields. Oil from high-crime or unstable neighborhoods like Iraq, Nigeria, Columbia and the former Soviet republics isn’t as reliable as a pump-jack sucking up oil between Denver and Longmont, but the latter is tiny potatoes. Our current lifestyle would melt away in months without critical imports from Saudi Arabia, Venezuela, Mexico and Canada. Is peak oil a secret? Don’t bet on a conspiracy here. But plenty of players aren’t forthright, one seems blind, and OPEC hides the ball. The oil industry’s job is to extract oil and make a profit for investors. They’re under no obligation to study peak oil and sound an alarm. Most avoid the subject, with some exceptions. In 2000, BP’s CEO Lord John Browne showed world economic leaders BP’s projection that world oil would peak and flatten out by the year 2010. Back in 1989, Shell’s retiring CEO projected a peak in world oil production by 2010. A review of the US Energy Information Administration’s (EIA) take on peak oil disappoints. Essentially, they project what future demand will be, then calculate where the oil could come from to meet the demand. The resulting message: don’t worry, be happy. Futurist Peter Schwartz, author of The Art of the Long View, says bluntly, “…the Federal government in D.C. is systematically unable to think about the future. By definition, all their policies must be successful and they have foreseen every problem.” EIA’s forecasting resembles that remark. OPEC’s the wild card here. How much oil do they really have? How fast can and will they produce it? Two reactions Back in 1956, when Hubbert told the oil industry that US oil production should peak in about 1970, he nailed it. In an interview with this writer in 1988, Hubbert recalled that in 1956, oil industry and government reactions split evenly. Half his audience was in denial; “it won’t happen during our lifetimes” was a typical line. The other half was bummed: “why did you have to ruin our day?” Most economists who examine the peak oil issue today complacently figure it will be a non-issue tomorrow. “We’re clever. We’ll figure out substitutes. The Stone Age didn’t end because we ran out of stones.” I’ve read their perspectives and am not persuaded. They highlight new projects yet ignore the daily declines of older fields worldwide. They sound like the critics during the 1950s and 1960s calling Hubbert a fool for his peaking prediction that ended up being right on target. Today’s peak oil alarmists include retired petroleum geologists and scientists, primarily Europeans. Given the world’s lack of awareness about peak oil, they foresee the world economy smashing into a wall. In this country, Simmons speaks out more frequently and forcefully than anyone else about world oil issues. Back in 2001 he urged a “Marshall Plan” to drill our way out of our looming oil and natural gas problems. Now he seems more sobered by the scale of the changes we face, stressing the need for a balanced energy policy and the probability of a gradually shrinking economy. Why does this matter? We’re the Oil Tribe. Oil is our lifeblood. No other material has so profoundly changed the face of the world in such a short time. Simmons calls oil “industrial society’s oxygen.” Oil supplies about 40% of the world’s commercial energy needs vs. 25% from natural gas and 25% from coal. Most importantly, the transportation sector relies 95% on petroleum products. That’s because oil is our most concentrated, flexible and convenient fuel. Without oil, 2% of Americans don’t feed the remaining 98%. Oil is the feedstock for paint, plastics, pesticides and thousands of other products. What happens post-peak? The challenge for builders and everyone in the shelter industry is that no one knows what the post-peak world will look like and how it will operate differently. Authors Jim Kunstler and Richard Heinberg offer some harshly realistic views that stress our resilience. Some commentators embrace a grim “die-off” vision that makes you want to change the channel. One thing you can absolutely bank on: near-term oil prices will be extremely volatile within a higher price band. Respected sources project an average price of $50+/barrel oil within five years, up from this year’s $36 average price and compared to $20 over the last decade. As demand increases—mostly in China, India and the US— surprises (revolution, war, etc.) could easily reduce already tight supply, spiking prices as high as $100/barrel. Long term, oil prices will absolutely trend higher. There is no alternative fuel cavalry waiting in the wings. Peter Schwartz recommends “rehearsing our future” by creating three scenarios: more of the same; worse; and different but better, involving fundamental change. He encourages naming scenarios, asking broad questions, and identifying key driving forces. Schwartz warns that, “even the most unlikely events should be prepared for if the consequences are great enough.” Try developing these three: “Sleepwalking” (business as usual), “Pothole” (Middle East/Asian revolutions) and “Blue Sky” (capitalism with modified incentives). Based on the unwillingness of both U.S. political parties to seriously anticipate and grapple with the looming reality of peak oil, Sleepwalking and Pothole seem more likely to occur. Peak oil will happen. It is not a question of if, but when. This will be a once-in this-world event. I’m both curious to see how we’ll respond and a little worried how things might turn out. The Bard wrote, “Fearing the worst oft cures the worst.” I hope so. Steve Andrews consults with builders and code officials for E-Star Colorado and writes on energy issues (email@example.com). E-Star, at 303-297-7470 (www.e-star.com), is a non-profit home energy rating system that works with both new and existing homes statewide. Parts of the above article were borrowed from “When Will The Joyride End?”—a 4-page white paper co-authored with principle author Randy Udall (www.aspencore.org) in 1998 .
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