Free For All - The Free Liberal Blog: Life After the Oil Crash

August 2008

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About a year ago I was working a booth at an energy fair when I was approached by a young woman who informed me that the free market was not prepared to deal with the problem of "Peak Oil," and that drastic action was needed NOW! She claimed that she had worked at the Cato Institute in the past, and had been in favor of market economics until she learned of the impending crisis.

Since then, the phrase "Peak Oil" has been popping up repeatedly, and I suspect it will reach the popular consciousness as much as global warming is today.

For those who have read the message of the Peak Oil Cassandras, I have an urgent message for you: DON'T PANIC! Things are not as dire as they claim.

For those who haven't been exposed, I will summarize their basic argument here, and then analyze their conclusions in subsequent entries. Before I get into the analysis, let me state from the outset that they could be onto something. Oil production may well peak soon, and there may be some economic hardships ahead. What I will question is how much action is required today, and whether the decline in oil production will result in the end of industrial civilization (their contention).

The Peak Oil thesis runs like this: when an oil field is discovered, initial production is small at first. It takes a while to drill the wells to tap into the field. As holes are drilled production increases. Then, when roughly half of the recoverable oil is extracted, production starts to decline. Pressure drops off. Secondary and then tertiary recovery techniques are required. These things keep production going, but at a lower and lower amount. Over time, the output from a field looks like some type of bell curve.

Each field has its own bell curve. The discovery of new fields is also a bell curve -- one which are on well on the right hand side of. Add up the curves and you get another bell shaped curve, the curve of total oil production. As a result, we can expect a decline in oil production long before we run out of oil. The decline should begin when roughly half of the recoverable oil is used up.

This by itself is good news. It means we will get a reduction in supply and a rise in prices long before we run out of oil. This gives the market time to respond!

Now, the pessimistic view: the initial drop-off could be steep. Further, demand is rising. When production starts dropping it could drop pretty fast at first -- possibly faster than the market could comfortably adjust to.

To makes things more fun yet, this peak could happen at any moment. According to the Peak Oil theorists Saudi Arabia and some of the other OPEC members could be very close to their peaks. This is a far different view than the official view, which has had reserves increasing dramatically during the 1990s. But, these stated reserves were stated by governments which had an incentive to fib: OPEC quotas are based on reserves. If a country ups its stated reserves, it can pump more oil and still comply with the cartel agreement.

This puts me in a peculiar dilemma: do I believe the fearmongers? Or governments which have an incentive to lie? Neither has a good reputation in my book.

In my next entries, I will assume the fearmongers to be correct up to this point. It is the consequences of the oil peak and how we should respond where I will differ. I do not think we are looking at the end of industrial civilization, or that we have to get the population back down to 2 billion or we must experience a die-off. I do not think that cars will be owned only by the rich, or that we must go back to a village lifestyle. (We might anyway, if people find that desireable, but that's another story.)

Until then, I invite you to read www.lifeaftertheoilcrash.net. Then, keep an eye on this blog and I will point out the errors on this site, and why things are not as dire as stated. If you want more homework, read "The Party's Over" by Richard Heinberg. The book is much better than the site, but, being a book, it is longer and you have to buy it.