Why I Think We're On the Downside of Hubbert's Peak

I have several reasons. Let me list them in order:

1. In May 2005, global “oil” production (that is, oil defined in the strict sense as crude plus petroleum condensates or C+C) reached a peak of 74,298,000 barrels per day, according to the United States Energy Information Administration (EIA). From that time until January 2008, that record was not exceeded, despite a massive increase in price for crude oil and refined products. According to the EIA, January 2008 saw a new record – but just barely; global C+C production averaged 74,466,000 barrels per day. This is a difference of only 168,000 barrels, or 0.23 percent.

2. There are very good potential explanations for the very small rise in crude oil production observed in January 2008. After all, the International Energy Agency (IEA), along with several national governments, begged OPEC to increase oil production in the summer of 2007. And OPEC agreed in their September meeting to do just that, promising to raise production by 500,000 barrels per day, starting in November. But there were energy observers who doubted that OPEC had sufficient spare production capacity to add significantly to their oil output. Although oil production figures from the EIA indicate increased OPEC production during this last winter, peak oil theorists were skeptical that the production could be maintained for anything longer than a few months. If this proved to be true, the production increase could be explained by the blowing down of gas caps in fields and wells that were nearly depleted, or by the release of crude that was being kept in storage. And in fact, production figures published by the IEA for the months of February 2008 onward show that OPEC production has quietly begun to fall. Also, OPEC has publicly stated that they will not raise production any more than they promised last September.

3. Both the EIA and the IEA began over two years ago to stop focusing solely on crude oil output, choosing rather to introduce another measure of petroleum production – the concept of “total liquids.” This includes not only crude plus condensates, but also biofuels, natural gas plant liquids, coal turned into liquid fuel, and synthetic petroleum made from tar sands. According to the IEA, world “total liquids” production reached a peak of 86.13 million barrels per day in July 2006. This figure was not exceeded until October 2007. According to the IEA, from October 2007 until February 2008, total liquids production increased from roughly 85 million barrels per day to 87.5 million barrels per day. However, in March 2008, world total liquids production decreased by 100,000 barrels per day.

4. The significance of these IEA total liquids numbers must be discussed. The IEA regularly performs petroleum demand forecasts for the world economy. If you dig into these, you will find the IEA saying things like, “World total liquids demand is expected to grow to XX million barrels per day over the next year.” This simply means that the global industrial economy depends on petroleum in order to run, and that because most economic transactions and policies are based on the assumption that the economy will grow by a certain percentage every year, the supply of petroleum liquids must also grow by a certain percentage every year. If the total liquids supply does not grow as fast as the expectations of economic growth require, or if the total liquids supply remains static or begins to shrink, then the price of petroleum products begins to spike. The funny thing is that the IEA projected world demand for petroleum liquids for January 2008 was around 88 million barrels per day. According to the IEA, the world produced nearly that much petroleum liquid in January 2008. So why then did prices of crude oil and finished products rise from the $65 per barrel range in July 2007 to over $100 per barrel by February? In the minds of many observers, the IEA total liquids numbers are suspect.

5. Crude oil prices continue to rise at an accelerating rate, like a raging fever or a cough spiraling out of control. One result of this is that refineries in the United States are running at far less than capacity, because refinery profits on finished goods are being eaten up by the high cost the refiners must pay for their raw material, which is oil. Some refiners, such as Valero, are starting to sell their US-based refineries and to move their operations offshore.

6. The list of countries whose oil production is past peak and now in decline keeps growing. Russia seems to have joined that list this year (http://www.bloomberg.com/apps/news?pid=20601013&sid=aJGP_74f8HBE&refer=emergingmarkets). Other long-time members of that list include Mexico, Indonesia, Britain, Norway, Venezuela, Iran, and the United States. Indeed, a crude oil supply report published by the German Energy Watch Group in 2007 shows dozens of countries who are past their peak of oil production.

7. That Energy Watch Group report, entitled, “Crude Oil – The Supply Outlook,” can be found at http://www.energywatchgroup.org/fileadmin/global/pdf/EWG_Oil_Exec_Summary_10-2007.pdf. The report was sponsored by the German government, by the way. Don’t read it before bedtime if you want a peaceful night’s sleep, because it concludes that world oil production probably peaked in 2006, and will very shortly begin to decline at a rate of several percent per year, leading to severe economic changes. So far, many of those changes seem to be happening.

What do I expect to see in the months ahead if the world is really past peak? The following things:

1. Continued feverish escalation of crude oil prices.

2. The appearance of spot shortages of fuel even in the First World, including the United States.

3. More refiners moving their operations out of the United States.

4. A general trend for weekly petroleum and finished product inventories to decrease over the next several months, although there may be a few weeks here and there where that does not occur.

5. Increasing signs of strain and breakage of elements of a society built and based on cheap oil – more airline failures, truck transport failures because of cost and lack of availability of diesel fuel, increased difficulty in operating industrial agriculture because of the lack of diesel and of fertilizer and pesticides, etc.

Meanwhile, there are strains appearing very close to home. This week, when I went to the store to buy rice, it was gone. Clean gone – except for a handful of one pound bags. Shortages of basic foods are beginning to appear in the United States. People are being squeezed by a combination of foolish personal choices and astronomical prices. Even in the ritzy areas within a 20 mile radius of my working-class neighborhood, realtors are having to auction off houses. On my way home from work, I saw a cluster of 9 McMansions, each for sale for over $1 million. I had watched them being built last September. Only one of them has sold thus far, and I suspect that it will be a long time before the others sell – for much less than $1 million.

But I leave you with a couple of pictures of one activist’s thoughts on the present crisis. Looks like the sort of art that could have been done by someone like Banksy – except that he would have done it in stencil.

The Theoretical Basis for Peak Oil

"World Total Liquids Supply" projection chart, August 2007, courtesy of "Ace" at www.theoildrum.com

It happened at the end of two full years, that Pharaoh dreamed: and behold, he stood by the river.

Behold, there came up out of the river seven cattle, sleek and fat, and they fed in the marsh grass.

Behold, seven other cattle came up after them out of the river, ugly and thin, and stood by the other cattle on the brink of the river.

The ugly and thin cattle ate up the seven sleek and fat cattle. So Pharaoh awoke.

He slept and dreamed a second time: and behold, seven heads of grain came up on one stalk, healthy and good.

Behold, seven heads of grain, thin and blasted with the east wind, sprung up after them.

The thin heads of grain swallowed up the seven healthy and full ears. Pharaoh awoke, and behold, it was a dream.

It happened in the morning that his spirit was troubled, and he sent and called for all of Egypt’s magicians and wise men. Pharaoh told them his dreams, but there was no one who could interpret them to Pharaoh.

• Genesis 41:1-8

The oil age began thousands of years ago, with the use of bituminous pitch by societies existing from Biblical times onward. But the petroleum age kicked into high gear from the 19^th century to the present. In the 20^th century, M. King Hubbert, a Shell Oil geologist, predicted that the oil age would soon come to an end.

Hubbert was no dummy. Among his accomplishments, he correctly deduced that the rock of the earth's crust would exhibit plasticity of movement at depths of several miles below the earth's surface, where rock pressures and temperatures are very high. And he contributed greatly to the understanding of hydrocarbon migration paths in reservoirs beneath the earth's surface. But he also observed that instantaneous oil production from any particular field followed a roughly bell-shaped curve over time – beginning at a certain rate, rising to a maximum when roughly half of the recoverable oil had been pumped, then falling away eventually to zero. Based on his observation of individual field behavior, he formulated a theory that not only fields, but regions and even nations producing oil would experience the same behavior, with regional production beginning at a certain level, then rising to a peak when roughly half of the recoverable oil had been extracted, before falling away eventually to zero.

He presented his theory in a speech to the American Petroleum Institute in 1956, predicting that oil production in the United States would peak between the late 1960's and 1970 before heading into irreversible decline. His audience was stunned. His bosses at Shell Oil were very unhappy. He was laughed to scorn. Then the 1973 Yom Kippur war occurred and the Arab oil embargo, and the West found out that Hubbert had been right.

My mom sent me to a gas station one day during the embargo and rationing. She needed gas to get to work, and her license plate was odd on an even rationing day, or something like that. I was sick with the flu, but I got on a bicycle and rode, carrying a gas can, to a station in front of which was a long line of cars waiting to get gas.

Hubbert also predicted that worldwide oil production would one day peak, then enter irreversible decline. He originally estimated that this would occur during the latter half of the 1990's; others who have studied his work have since pushed the date back to the latter part of this first decade of the 21^st century, or the very beginning of the next decade.

Hubbert was by no means the only “prophetic” voice warning of peak oil. Other voices include:

• Colin Campbell and Jean Laherrere (“The End of Cheap Oil,” Scientific American, March 1998). Colin Campbell, Ph.D, is a retired British petroleum geologist and founder of the Association for the Study of Peak Oil and Gas. He predicted that oil production would peak by 2007. Jean Laherrere is a retired petroleum engineer who used to be employed by Total S.A., a French petroleum company. His work on seismic refraction surveys contributed to the discovery of Africa's largest oil field.

• Kenneth S. Deffeyes, Ph.D, Professor Emeritus of Geology at Princeton University, who predicted that world oil production would peak in 2005.

• Chris Skrebowski, Editor of the UK Petroleum Review and former long-range planner for British Petroleum. Mr. Skrebowski originally argued against an impending world peak in oil production, but after studying data on decline rates of fields such as the British/Norwegian North Sea field, he has become a believer.

• Jeffrey Brown, independent petroleum geologist from Dallas Texas, who, in collaboration with others, developed the “Export Land Model” to describe how in a post-Peak world, net exports will decline much faster than the decline in actual world production.

Are all these "prophets" accurate? How close are we to “Peak Oil?” I am no geologist; only an informed reader of the facts. Yet, in my next post, I'd like to offer the reasons why I believe we are already past peak, and that 2008 will be the year that we are forced to confront this reality.

And in the meantime, I saw premium unleaded gas selling for $4.01 a gallon today as I was riding my bike home from work. I also passed a station where diesel was selling for $4.69. Signs abound warning whoever has eyes to see that our present society is on the verge of a change. These signs are not merely dreams and visions, but of the pronouncements of engineers and scientists tracing out cold hard fact. Yet the Pharaoh who was visited by the dreams of Genesis 41 was much wiser than the people now leading our nation, because he heeded the warning of those dreams and made preparations for coming bad times. Our leaders can't even dream.

World Oil Production Graph Estimate, Colin Campbell, 1996

If you were an employee of Aloha Airlines, ATA, Skybus, Frontier Airlines or Oasis Hong Kong Airlines at the beginning of this year, you are probably unemployed right now. If you are an employee of Alitalia or Virgin America, you might want to start looking around. If you made a living as an independent trucker last year, you are probably being squeezed to death by high fuel costs right now. If you are a poor citizen of Haiti, Mexico, the Philippines, or several dozen other places in the world right now, you will probably go to bed hungry tonight. In fact, you have probably gone to bed hungry for so long that it seems almost normal.

If you live where I do, you have seen gas prices jump as much as 20 cents per gallon in one week. Where I live, premium unleaded is selling for as much as $3.89 per gallon today. If you follow NYMEX crude oil prices, you noticed that WTI crude rose to $117 per barrel today. If you have been tracking your grocery bill, you know that the Government "core price inflation" index is a bad joke being told by rich people. If you live where I do, you have seen smart people - young, old, professional, blue-collar, and everything in between - hopping on bicycles to get around. If you are awake, you can see that there's a change in the wind - the signs don't lie.

If you are a typical resident of Southern California or Arizona McMansionville, maybe you don't notice any of these things. Maybe you are still driving a big, jacked-up "boy toy" truck or monster SUV with a tricked-out sound system and running bicyclists off the road on your way to your house, where you'll pop a DVD into your big plasma-screen entertainment center. You'll kick back, chill for a bit, maybe even catch some zzz's. But your sleep is about to be interrupted by the sounds of a society in seismic shock.

Introduction

Hey now,
the well run dry,
pages of your book on fire,
read the writing
on the wall - Joe Walsh

This blog is, as its title states, a diary of life on the down slope of Hubbert's Peak. "What is Hubbert's Peak?" you may ask? It is the maximum rate at which a resource can be extracted and used by a technological society. The most famous peak is Peak Oil, but there are other resource peaks which are becoming apparent. We in Western society have enjoyed the biggest fling of consumption in history. But the signs suggest that the party's over. Welcome to my journal of one man's daily experiences at the beginning of a great change.

One other thing: I am the author of the blog, TH in SoC. On that blog, I discussed issues relating to political power. This blog, The Well Run Dry, will expand on these issues in a way which is not suitable for TH in SoC, since that blog is actually more about religious issues. I also hope to post pictures on The Well Run Dry, as I have opportunity.