Nine days after I posted an article about the Cheney Oil Taskforce and Iraq, the discussion board continues to thrive. Some of it has revolved around the concept of Peal Oil–The notion that every oil field reaches a peak after which every barrel get more expensive do get out of the ground. Viewed from a global perspective, it means that at some point we have gotten more than half the world’s oil reserves out of the ground and are on the downward slope of recoverable oil. Needless to say, this always leads to upward price pressures. As you can see from the chart above, most experts think we are getting close to the peak. Those who scoff at the theory, have to admit that the U.S. reached the peak of its domestic oil capacity way back in the 70’s. Now my friend Vince Farrell (who you see on CNBC) who is one of the smartest guys about oil I know, thinks that Mexico has reached the peak.
Mexican oil production has been falling and the outlook is worsening. Production peaked at 3.4 million barrels a day in 2004 and is optimistically pegged at 2.8 million a day now. If the trends continue, Mexico will be importing oil in about seven years. Right now, Mexico is the third largest exporter of oil to the U.S. behind Canada and Saudi Arabia and oil revenues account for over one-third of all government receipts. President Felipe Calderon has made energy overhaul his top priority, but oil in Mexico is more than a commodity, it is a political commodity. They will be trying hard to develop the offshore fields that offer much promise. Pemex is bidding for deepwater rigs now (to the benefit of companies like Transocean), but expect politics and corruption to slow the process. The lack of near term success will only put more upward pressure on the price of oil.
As a nation, we can continue to ignore these realities, but the realists know that we will never see $2/gallon gas again.
9 responses so far ↓
John Kelly // February 22, 2008 at 8:47 am |
The general idea of Peak Oil makes sense to me on basic economic and resource principles. Understanding how free markets drive innovation, I can also see ever- higher prices for oil based products leading to new solutions, ranging from more efficient products and methods to changes in lifestyle and behavior. Eventually.
Unfortunately a lot of the people I know (at home in rural eastern CA and at work in central TX) are cornucopians of the dumbest sort. I have been asked several times by my co-workers and neighbors “why can’t we just make more Oil?”. or, almost as bad, “We’ll switch to Hydrogen instead and there’s lot’s of that in the oceans.”. This lack of basic understanding of chemistry and energy is, I believe, widespread globally and will interfere with any goal of bringing sweeping change and enlightenment to help us all move quickly to new methods and sources of energy while preserving oil resources for the uses for which it is uniquely suited.
Instead I think the situation will have to get much much worse before it gets better. I still think it’s important to talk about and learn about – I just think the best target for those discussion is thought leaders, innovators and politicians. I think that we, on the whole, are not able to respond proactively nor intelligently. Rather a few of us will be able to position themselves to take advantage of the situation.
Zhirem // February 22, 2008 at 11:30 am |
Good post Mr. Kelly. I think that this is a prime opportunity to actually capitalize on a weakness. The US needs oil. That is not debatable. However, through simple conservation methods, we could reduce dependency upon foreign oil by roughly 20% to 25%, and that is with the technology and techniques that we have available to us *today*. Conservation would be a good start.
Beyond this, hydrogen is an energy-carrier, not a source of energy itself. There is only one nation on the planet, to my knowledge that could (and partially has) moved to a hydrogen economy, and that is Iceland. The reason: they sit atop the greatest density of readily available geo-thermic power on the planet. They can make hydrogen because of their ‘free’ energy, and accept energy loss in the conversion process, because geo-thermal is a (relative) constant supply for them. Currently, if the US wanted to move to such a process, it would be a net energy *loss*, because the energy gained from exploiting the hydrogen in a fuel cell would be unequal to the energy that would have to go into creating it.
That being said, I think that American ingenuity and big-thinking could lead us to develop technologies, techniques, services and products that could be of use to not only ‘green’ energy production and conversion, but also energy capture. Those two ideas, energy and environment, will co-exist and provide one of the greatest economic growth opportunities this country may have ever seen. If, we can capitalize on this opportunity, we could even go so far as to be running trade surpluses with other countries in the mid-term future. Think about how incredible that would be, to sell China the goods, technology and services to help them clean up their environmental mess, and help wean themselves from fossil fuels. 15 to 25 years out, they are *seriously* going to need it.
Easier said than done, for certain. But we did not think at the time, putting a man on the moon would be easily done, or curing polio, or terrabyte hard-drives for $300.
Lastly, I ran across a very detailed article on how we could capitalize on solar. Whatever you may think of the technology, you owe it to yourself to peruse this article: http://www.sciam.com/article.cfm?id=a-solar-grand-plan&page=1
- Zhirem
Chad // February 22, 2008 at 3:13 pm |
John Kelly: Instead I think the situation will have to get much much worse before it gets better.
You know, I used to be very dismayed by this idea in relation to American politics. A while back, I would look at what was going on in Washington, not just BushCo but also our legislature, and think about how much worse it was going to have to get before the average Joe on the street looked past the Fox News headlines and paid attention enough to get angry and oust the self-serving influence peddlers that made up the majority of our elected government officials.
But you know, there is something very interesting about this election cycle. First off, I have a 13-year old son who is very, very engaged in what’s happening in the American political landscape right now (thanks not just to my engagement, but people Steven Colbert, etc). And it isn’t just him, he comes home and tells me about the conversations he had with his friends that day concerning Obama, Super Tuesday, Valerie Plame, etc. While locally this might just be his clique of friends, I do think it exemplifies a trend of younger people becoming much more aware and engaged in politics than they were 10 years ago.
Secondly, check this out:
http://www.youtube.com/watch?v=kica8hmSdAM
After years of “Jay Walking” and other shows that took to the streets to gets laughs over how ignorant the average American was, being able to find discourse this relevant with someone so informed randomly chosen on the street is very encouraging. Again, maybe it is just me, but I would have been surprised to hear something like this in 2000 or really even in 2004.
So maybe it is just me trying to lift my own spirits, but I sometimes wonder if surviving the Bush years is the dark storm we had to weather in order to get people more engaged, more tuned in and active in our political landscape. I can’t help but think that such interest and engagement would also apply towards things like global energy usage, our role as the world’s police, and many of the other topics that have been brought up on this blog as of late. Having people engaged in all facets of the world around, rather than engaged in the latest reality TV show or new product from ConsumerWhore Inc.
In any case, such things have been the source of my burgeoning hope that this country is turning the corner and will be heading in a new direction soon. Not just through the removal of the worst administration we’ve seen in recent and not-so-recent memory, but also in the people of this country reclaiming their power and electing a government that will do what is right by them, not just in 2008, but for the next generation or two at least.
Anyway, just my $.02 worth.
-c
wardfunk // February 23, 2008 at 3:24 pm |
How interesting. Within the last year I was introduced to the idea of peak oil — glad to hear you blogging about it. Keep up the good work.
Mexicos Oil Production peaked! « A private Blog from Michael Jung. // February 23, 2008 at 5:44 pm |
[...] Mexican oil production has been falling and the outlook is worsening. Production peaked at 3.4 million barrels a day in 2004 and is optimistically pegged at 2.8 million a day now. If the trends continue, Mexico will be importing oil in about seven years. Right now, Mexico is the third largest exporter of oil to the U.S. behind Canada and Saudi Arabia and oil revenues account for over one-third of all government receipts. President Felipe Calderon has made energy overhaul his top priority, but oil in Mexico is more than a commodity, it is a political commodity. They will be trying hard to develop the offshore fields that offer much promise. Pemex is bidding for deepwater rigs now (to the benefit of companies like Transocean), but expect politics and corruption to slow the process. The lack of near term success will only put more upward pressure on the price of oil. (Source) [...]
Roads // February 24, 2008 at 9:39 am |
Interesting to read about Mexico reaching peak production. As a comparison, the UK North Sea peaked in 1999. Production has declined by 40% since then.
What’s fascinating to debate when looking at your graph above is whether the world petroleum production will follow a similar pattern in scale with that of the North Sea – declining 4% a year from now on (that seems unlikely, but perhaps it can’t be ruled out completely) or if we will see a relatively flatter decline resulting from the sum of so many different production bell-curves from all around the globe.
But if you factor in standard expectations of economic growth at 2% a year, and a global increase in petroleum consumption at almost that rate, then even the effect of a standstill in petroleum production could be quite astounding both on oil prices and on the world economy.
As John Kelly says above, higher energy prices will make alternatives more economically practicable, but the problem is simply that we use so much energy and it will take so long to plug any shortfall that develops – the lead time of such massive investments is far too long and we have left it much too late to begin thinking about it. Nevertheless, of course, that is every reason why we should begin today.
The level of understanding of energy supply is pretty poor worldwide, I agree, and it is certainly no better in many of our governments.
But as a European, it does seem quite astonishing when people talk about being introduced to the concept of peak oil as late as 2007.
Where have y’all been?
Jon Taplin // February 24, 2008 at 1:55 pm |
Roads-I’ll tell you where we’ve been–In the state of denial. The U.S. ranks 28th in the world in energy efficiency (BTU/GDP). Our transition to the new economy of expensive oil will be much more painful than yours.
Malthus Redux? « Jon Taplin’s Blog // June 16, 2008 at 8:08 am |
[...] We clearly have a lot more land that could be planted to feed the world. As to oil, I think the Peak Oil theorists are right. For Americans, we are going to have to live a more frugal and less wasteful lifestyle. We have to [...]
Erik // June 27, 2008 at 1:43 am |
The only thing I can do is to agree to Malthus.
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