Crucial Differences Between "Peak Oil" & "Peak Oil Debate"

D Ray Long of ASPO USA has a post on one of the reactions to the impending demise of The Oil Drum - A Buzzfeed Attack On Peak Oil Deserves A Buzzfeed Response. He also has some follow up pieces - Crucial Differences Between "Peak Oil" & "Peak Oil Debate" - Part 1 and Crucial Differences Between "Peak Oil" & "Peak Oil Debate" - Part 2.

"Mentions of “peak oil” in news publications peaked between July 2007 and July 2008, according to Nexis" and "Web search interest in “peak oil” peaked in August 2005 and spiked again in May 2008."

I spoke on this a little before, but I continue to be amazed by how many very smart people just don't understand how silly they look when they use THIS as evidence of Peak Oil's demise.

If "internet popularity" was the true measure of importance, we'd have given the keys of the world to Justin Bieber a long time ago. And if you looked at how many people were talking and writing about terrorism in August of 2001, those guys would probably conclude that topic peaked forever in the early '90s.

I'm shocked I have to keep repeating this, but "We judge Peak Oil by oil production rates, if you're looking at anything else, you're doing it wrong."

"Oil prices also peaked around then, hitting $145 per barrel in July 2008."

It's like Zeitlin forgets to include the second half of that sentence. His own chart shows that oil hit $145, retreated, and then resumed its march back up. RIGHT NOW as people are falling over themselves proclaiming the death of Peak Oil, oil is back in the triple digits and at 15-month highs. Over the past decade-plus, the price of oil has more than tripled.

Peak Oil can never really die, because oil is a finite resource and any finite resource peaks in production. But you can kill it in the court of public opinion, and for that to happen you'd need two things:

1) You need daily production rates to continue to skyrocket, leaving far behind any peaks of the past. But you also need something more difficult.

2) You need what AEI's James Pethokoukis called the "wonder-working power of technological innovation" to actually reduce oil prices, much like Moore's Law for computers has made memory cheaper year after year. If you're in a production boom, but you then have to turn around and tell the people of the economy that they'll have to keep paying a larger share of their income for gasoline... is that really a net win?

In oil production, you access the easy and cheap oil first, then move on to the more difficult and more expensive oil later when prices allow. That's why conventional crude oil production has already peaked, and the only thing keeping total oil production from declining are gains from much more expensive unconventional sources.

Anyone seriously telling people that Peak Oil is dead, really needs to have a strong answer when regular people ask why prices are still so high.

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Has Peak Oil Been Vindicated Or Debunked ?

The impending demise of The Oil Drum seems to have prompted something of a resurgence in interest in peak oil.

Matthew Yglesias has a post at Slate on the state of the peak oil debate - Has Peak Oil Been Vindicated Or Debunked ?. I love the way the oil price graph demonstrates the impact the supposed flood of shale oil (combined with the great recession) has (or more accurately, hasn't) had on oil prices - as we switch from depleting conventional oil to unconventional oil, the floor price for oil gets ever higher and the environmental damage per barrel gets bigger - just as peak oil theory predicts...

I will admit that I've always found the "Peak Oil" debate to be a little bit confusing, especially because both the words "peak" and "oil" turn out to have some ambiguity to them. But recently a couple of my favorite bloggers were debating the implications of the "unconventional oil" boom for the debate, with Karl Smith proclaiming peak oil dead while Noah Smith says it lives on. My approach would be to try to skip past some of these definitional issues and look at prices.

Above you see the nominal prices for Brent Crude Oil and West Texas Intermediate. As you can see, historically the prices are identical because oil is a globally traded commodity. You can also see that in the late 1980s and throughout the 1990s the price was low—around 20 dollars a barrel. These were the happy days in which the oil crises of the 1970s had been put behind us, and everyone got to hail the economic genius of Ronald Reagan and Bill Clinton. You can also see the supply disruption induced by Iraq's invasion of Kuwait and the subsequent geopolitical crisis that left George H.W. Bush without the reputation for economic mastery that Reagan and Clinton enjoy. Then you see a rise, then a fall, then a steady rise. Eventually the rise gets really crazy and people are in freak-out mode. Then comes a global recession and a huge collapse in prices. At this point we look around the wreckage and wonder wtf just happened. Was there an amazing oil bubble comparable to Irish real estate? Or has the recession just pushed prices down artificially?

Now with some subsequent years of data we can see that despite the slow growth in developed countries prices have very certainly not returned to the halcyon days of the Reagan-Clinton years. We can see that the Iraq/Kuwait price spike actually looks like a bit of a joke. We can see the impact of the unconventional oil, which has created this anomalous gap between the WTI price and the Brent price. It's a big gap. This is nothing to sneer at. Not only is it causing an economic boom in North Dakota and select portions of Texas, but it plausibly explains some of why America's overall economic performance has been so much better than Europe's. But even so, America's oil boom hasn't pushed U.S. oil prices back down to mid-aughts levels and it certainly hasn't pushed U.S. oil prices back down to 1990s levels. The good old days of genuinely abundant liquid fuel really do appear to be behind us.

It's probably worth noting the WTI - Brent spread mentioned above has disappeared now - you have to keep on drilling pretty fast if you want to maintain production from fast depleting shale oil wells - and the previously exponential rate of growth in drilling has now stopped as Stuart Staniford shows in the chart below - US Oil Rig Count and Oil Production.

The Slate article above references this blog post from Noahpinion - Peak Oil is dead! Long live Peak Oil!.

One of my favorite websites, The Oil Drum, is shutting down, and I am mad! Everyone is attributing the shutdown to the death of the "Peak Oil" meme, which in turn is attributed to fracking. The first is probably true; Peak Oil mania is over. But the second is false. Fracking has not killed Peak Oil. It just hasn't fit the narratives that many of the Peak Oilers spun.

The thesis of Peak Oil is simple: Global oil production will soon peak and begin to decline. But there were two possible stories that the Peak Oilers told about how this would happen:

"Good Peak Oil": In this case, we find something that's better than oil, and switch to that, just like we once transitioned away from whale oil. In this case, oil prices and production would both fall.

"Bad Peak Oil": In this case, we don't find something better than oil, and as oil becomes more scarce, the price would go up, while oil production and overall economic activity both contracted.

What we got was neither of these. Or more accurately, we got a little bit of both, coupled with something else that doesn't fit with either story. What happened was this:

1. Global demand for oil increased, due to growth in emerging markets, pushing up oil prices in the 2000s - from around $20 to over $100, a five-fold increase.

2. At the new higher price, it became economical to tap expensive oil sources like tight oil (fracking), deepwater oil, and oil sands.

3. Even at the new higher prices, it has not been economical to increase "conventional" oil production. Instead, all net production increases have come from "unconventional" sources. And most of that "unconventional" production is not actually "oil" at all, but "liquids", which includes things like natural gas liquids.

4. There was a several-year lag in the mid-2000s where global oil production plateaued even as prices increased. This culminated in a dramatic spike in oil prices in 2007-8 which then subsided due to the global recession and the dramatic increase in unconventional oil production.

5. Oil prices are still over $100, even as global growth has been slow. Meanwhile, oil usage in rich countries has declined significantly.

This story does not easily fit with either of the Peak Oil scenarios. But it has important elements of both.

First of all, the peak in conventional oil, coupled with a dramatic surge in unconventional oil, looks a lot like the "Good Peak Oil" scenario, in which technology produces a new alternative energy source, and we switch to the new thing.

But the seemingly permanent increase in oil prices, and the fall in oil demand in rich countries, fit the "Bad Peak Oil" story. It indicates that the world is hitting oil supply constraints.

(And of course what the Peak Oilers missed was unconventional oil itself. Some of them missed the technology entirely, while others merely failed to anticipate that the industry's terminology would switch from "oil" to the more weaselly "liquids".)

So what happened was NOT that we switched to something better than oil. We switched to something worse than conventional oil: unconventional oil, which is more expensive to extract and/or to refine into usable products. This has left us permanently poorer than we would be if conventional oil hadn't hit global supply constraints. Filling up your gas tank is twice as expensive now, in real terms, as it was two decades ago. And that looks unlikely to change. In the wider economy, increased transportation fuel costs may be a main driver of the Great Stagnation, which manifests most clearly in the stagnation of transportation technology since the 1970s.

Basically, what happened is this: Scarcity attacked humanity, and Human Ingenuity battled back. Through heroic efforts, doomsday was averted. But Ingenuity did not win a smashing victory, as it did when we switched from wood to coal, or from whale oil to oil. Instead, humanity was forced into a fighting retreat, with Ingenuity executing a brilliant rear-guard action and forcing Scarcity to call off its pursuit...for now. But humanity has lost ground.

And Scarcity may not wait very long before launching another attack. Future increases in shale oil production (including tight oil and oil shale) is likely to be a lot more expensive than the low-hanging fruit we have picked thus far. Coupled with continued rises in developing-country oil demand and continued decline in conventional oil fields, this could cause another rise in oil prices. That will bring back the "Peak Oil" meme, which only seems to interest most people as an investment story. But sadly, The Oil Drum will not be around to chronicle the return of Peak Oil.

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A place where the peak oil crowd gathered is no more

Platts has a nice article noting the end of The Oil Drum - A place where the peak oil crowd gathered is no more.

There used to be a website driven by a completely non-transparent metric that would rank the “importance” of various Twitter feeds similar in their areas of interest. It’s defunct now, and the name of it is forgotten.

It would look not only at the number of followers, but other things like how many followers your Twitter feed’s followers had, how often your Tweets were re-Tweeted, and so on.

The @PlattsOil feed consistently ranked second in the oil category, for whatever that was worth. It was always a harmless time-waster to check and see how we were doing. And how we were doing was that from our #2 perch we were always looking up at the Twitter feed of The Oil Drum, which was the primary website for a dialogue on Peak Oil.

And now The Oil Drum is closing up shop.

Those people in the industry who have long believed that the devotees of the peak oil movement were completely wrong have been rejoicing the last few years as North America’s output keeps rising. They see the Peak Oil movement as another bunch of failed neo-Malthusians. The demise of The Oil Drum is sure to add to that feeling of glee.

In the announcement that the site was shutting to new content, to be kept online only as an archive of old posts, The Oil Drum’s owners said nothing about any shift in beliefs regarding the world’s ability to produce more oil. The possibility of shutting the site was “a discussion we have had several times in the last year, due to scarcity of new content caused by a dwindling number of contributors. Despite our best efforts to fill this gap we have not been able to significantly improve the flow of high quality articles.” The monetary requirements of maintaining the site also were cited.

The mission statement of The Oil Drum said it “seeks to facilitate civil, evidence-based discussions about energy and its impacts on the future of humanity, as well as serve as a leading online knowledge-base for energy-related topics.” Despite that lofty inclusive language, it still was pretty much an intellectual hangout for the Peak Oil crowd.

Andrew Leonard at Salon also notes TOD's passing - Peak oil’s death has been greatly exaggerated.

Sad news from the world of Peak Oil-awareness. On July 3, the Oil Drum, a fabulous one-stop-shop for news, analysis and discussion of energy issues, announced it was shutting down after an informative eight-year run. As of July 31, there will be no more new content published at the Oil Drum.

Back when I was covering environmental issues more regularly, the Oil Drum was one of the first places I’d go to get context on breaking news related to energy issues. The Oil Drum was also one of the best places to get educated about the threat of peak oil: the argument that the world was rapidly reaching the point — or had already reached it — of global maximum production of oil.

We don’t hear so much about peak oil these days. The most obvious reason: the deployment of technological advances that have increased production from old wells or made possible the extraction of fossil fuels from previously uneconomic sources, i.e., fracking. One commenter on the Oil Drum’s announcement went so far as to claim that “fracking had killed The Oil Drum.” Another posted a Google Trends documenting the sharp decline in searches for the phrase “peak oil” as contrasted to the sharp rise in searches for the word “fracking.”

I asked the Oil Drum whether the fracking-killed-the-Oil-Drum theory had any merit. Here is what “Joules Burn” told me (emphasis mine):

I think it is more the case that the majority of contributors (and editors and tech staff) are just burned out (sorry for that pun…). It takes a lot of effort to research and write quality articles, have reviewers whack at them for awhile, and then deal with the comments that come in (some useful, some not). I can think of many examples where folks just ran out of things they were passionate to write about. Even a regular (until recently) guest contributor stopped publishing on his own blog for this reason. Some have been pulled in different directions (including myself) with jobs and family and such. In short, there is probably no single reason. But as this is a collaborative effort of many individuals (and indeed with some differences of opinion on some issues), we just decided we no longer had critical mass and wanted to end at this still somewhat high point rather than let it morph into something unrecognizable.

I think TOD slowly died for a variety of reasons and editor and contributor burnout (or simply moving on to other things) was a major one.

Writing about the same topic (or set of topics) for free year after year (and having to deal with the local community while doing so, many of whom could be incredibly abrasive) can't be sustained forever - especially as people find new interests or have career and family demands take more of their time.

TOD also suffered from editorial divisions on topics such as global warming which resulted in some contributors moving on (in my view this was a prime reason for Stuart Staniford moving on, which was a major blow to the quality of the site) or taking a lower profile. This was always an annoyance to me - how we could (as a group) discuss peak oil as an example of "The Limits to Growth" while studiously ignoring (after a year of debate) or occasionally deriding another limit never made any sense to me.

The often heated division between traditional peak oil doomers and more rational peak oil observers was another large fault line that could never be adequately addressed. Abuse from the doomer community resulted in other contributors (Robert Rapier being the best example of this in my view) either moving on or taking a much lower profile. In retrospect, this was one of a number of reasons I drifted away - endlessly debating people who will illogically declare that civilisation will end soon as a result of peak oil or that nuclear power will solve all our problems or that global warming is a left wing conspiracy becomes incredibly tiresome after a while and you find yourself having to choose between letting people use your articles as a soapbox for their nutty views or wasting vast amounts of time debating the same topics endlessly with them.

I think the straw that broke the camel's back though was the ill-fated "Moving Forward - Towards A Kinder Gentler (Smaller) Oil Drum" declaration, which sapped energy from the site and demotivated contributors such as myself who wanted to look at a wider range of topics than simple oil depletion. Admittedly this was always going to be something of a turning point - Gail's editorial decisions were often baffling to me (as were her endless series of postings warning of financial doom), the Campfire posts, though wildly popular, simply fed the prevailing doomer mentality, and leading figures such as Prof Goose and Nate Hagens had drifted away from making regular contributions. The choice to downsize and become more tightly focused on a limited group of topics was the catalyst for things ending where they did in my view.

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