The term “peak oil” expresses the idea that resources of mineral resources such as petroleum will in the near future be in short supply if not totally exhausted. As shown in the Fig. the basic idea is simple: global population is increasing
The notion that we will run out of natural resources, including
metals, is not new. Malthus, in his celebrated article written in 1798 (An
Essay on the Principle of Population, as it Affects the Future Improvement of
Society with Remarks on the Speculations of Mr. Godwin, M. Condorcet, and Other
Writers; Malthus (1830)) predicted that the increase in human population would
rapidly exhaust supplies of food and natural resources, and the theme has been
revisited many times since then.
In the report of the ‘Club of Rome’ published as the book “Limits
to Growth”, Meadows et al. (1972) also used a model in which human population
and consumption of resources increased exponentially while the rate of
discovery of new resources increased at best linearly. The consequence, if the
assumptions are correct, is rapid depletion of these resources, as shown in the
Fig. According to the more pessimistic prediction made in 1972, the year that
the book was published, global supplies of copper would now have become scarce,
of not totally exhausted. Clearly this has not happened—copper is still mined
in deposits all over the world in amounts that satisfy global demand. In 1972,
the total amount of copper known to exist in clearly identified and readily
exploitable deposits was sufficient to ensure supplies, at the rate of
consumption estimated at that time, for only the following 21–48 years,
depending on the assumptions that are made. Table 6.1 compares
the predicted times before exhaustion of copper and six other metals, as
estimated by Meadows et al. (1972), with another set of estimates made using
recent data from the United States Geological Survey (2013). To make this
estimate we simply divided the estimates of global reserves of the metal by the
annual production. Despite more than 40 years of consumption, the estimated
times before “exhaustion” of these metals have barely changed and in some cases,
they have increased. How can this be?
One product that went through a peak of production then dramatically declined is, paradoxically, renewable. Spermaceti, a wax present in the head cavities of the
sperm whale, was an important product of the whaling industry throughout the 18th and 19th centuries. It was valued as high-quality lamp oil and later used as a lubricant in several types of machine. “Peak spermaceti” occurred at the start of the 20th century when overfishing drastically reduced the number of sperm whales. As spermaceti became scarce, the price rose drastically and this led to a search for substitutes; electric lighting replaced oil lamps, and oil from the jojoba plant was used as a lubricant. The demand for the product diminished, in part a consequence of social pressure to ban or restrict whaling. Now, as stocks of sperm whale slowly rebuild, not even Japanese whalers talk of hunting them.
A parallel can be drawn with the exploitation of any natural
product, including metallic ores and other raw materials as well as petroleum.
Julian Simon, a vocal opponent of “peak” theories, provides another example. He
noted that at the end of the 19th century, the ivory used to manufacture white
billiard balls was becoming scarce and expensive. The shortage led to the
development of celluloid, a cheap plastic whose widespread use helped, for a
short time at least, to save elephants.
A similar dynamic has affected mineral resources. Most obvious is
the continuing competition between coal, oil and natural gas as the energy
source for electric power. As the price of one of these commodities rises,
another with a lower price will be substituted, taking some pressure off the
search for new resources. More recently, climate change issues have encouraged
a move away from coal to other energy sources. Similarly, as the price of
copper rises, aluminum can be used as a substitute in many of its applications,
again decreasing worries about exhaustion of the resource. Even slate, a common
rock, has experienced a shift in markets. In the past, it was widely used as a
roofing material, but around the start of the 20th century, it gave
way to other materials. No one would argue that this took place because “peak
slate” had been reached. The cost and effort of constructing slate roofs could
not compete with alternative roofing materials. Or, to repeat the commonly
cited adage, the Stone Age did not end for want of stone.
Although there can be little doubt that the production of oil and
gas will eventually pass through a peak, maybe this decade, maybe far later, it
is by no means clear that the cause of the peak will be the progressive
exhaustion of petroleum resources. When we wrote the first edition, we thought
that the main mitigating factor would be market forces. As supply diminishes,
or is perceived to diminish, prices will increase and this will inevitably,
sooner or later, lead to a drop-in demand. Use of petroleum will decline as we
learn to waste less energy or find alternative energy sources; and, in much the
same way as pressure from public and scientific bodies led to the banning of
whaling, pressure from similar sources will lead us to limit petroleum use so
as to decrease the rate of global warming. Because of the damage to the global
environment caused by the release of CO2 associated with the burning
of fossil fuels, many groups now advocate that even currently known resources
of petroleum should never be completely exploited but should be left in the
ground or used for petrochemical production. Over the long term, these factors
will certainly influence global consumption of petroleum products.
It now seems more likely that many apparent peaks in production and
consumption of minerals and other raw materials resulted because of exhaustion
only of known deposits of the type being exploited at that time. Take the oil
and gas industry as an example. When we wrote the first edition, we had little
knowledge of the dramatic changes that were soon to impact on global energy
resources. At that time, it was generally believed that the global rate of
production would soon start to decline, if it had not already done so. Access
to large petroleum resources, which were concentrated in the Middle East and in
other regions of potential instability, had a major influence on global
politics, and was partly responsible for the catastrophic incursions into the
region by the USA.
Since then the situation has changed dramatically. New discoveries
of enormous oil fields off the coast of Brazil, and the potential to find other
deposits from Africa to the Arctic, suggest that the supply of conventional oil
and gas was not as limited as originally thought. But
the real game-changer has been the discovery of vast reserves of unconventional
natural gas and oil in the USA. For much of the last decade, US authorities
were preoccupied by the dependence of their country on imported natural gas,
often from suppliers in unstable or politically hostile countries. They had
started to build a series of new terminals to accommodate tankers that would
deliver liquefied natural gas to the USA from the Middle East, Indonesia,
Australia and other exporting countries. They estimated that within the decade,
the USA would have to import a major portion of its natural gas. At the same
time, European leaders were concerned about the dependence of their countries
on imports of gas from Russia— concerns exacerbated by the pressure applied by
the Russian firm Gazprom on the Ukraine and indirectly on the rest of Europe.
Then, quite suddenly, technological advances allowed the extraction of gas from
a new source—shale and tight (impermeable) sand. This resource had been known
for over a century but previously the gas could not be extracted economically
from such low-permeability rocks.
Newly developed horizontal drilling methods provided better access
to flat-lying sedimentary strata, and “fracking” or hydraulic fracturing increased
their permeability, allowing gas and oil to be extracted.
The huge increase in USA gas production in the last 2000s caused
the price of gas to start dropping in 2008 in the USA, although it remained
high in other parts of the world. Increased oil production from shales and
tight sands took longer to impact the price, but by late 2014 it had declined
precipitously from over $100/bbl to below $65/bbl. The USA now satisfies a much
larger fraction of its domestic consumption and has returned to its earlier
role as the world’s biggest petroleum producer. The availability of cheap and
abundant energy has boosted US industry: according to some sources, it led in
2013 to a remarkable one-percent increase in gross domestic product.
The shale and tight sand boom has been slower to impact the rest of
the world Shale gas provides about 15 % of Canada’s natural gas production and
some shale
gas (<1 %) is produced in China. European countries such as
Poland and Great Britain, as well as South Africa, Australia, Argentina and
China, have large potential reserves of shale gas and oil, and in some of these
countries steps have been taken to evaluate these resources. But in other
countries, France being the prime example, vocal public opposition to the
possible extraction of shale gas has led parliament to ban even the exploration
for this resource. The main fuel for this opposition is environmental issues,
with ecologists expressing concern about the high consumption of water,
potential leaks of the chemicals used in the process, and possible
contamination of ground and surface waters.
Why do we write in so much detail about shale gas and oil—a product
that is somewhat apart from the main theme of this book? The reason is that the
controversy surrounding the supply and demand for oil and gas, and the public
perception of these issues, has much in common with the mining of metals and
other mineral products. Recent changes in the global petroleum sector relate
directly to the question we posed at the start of the chapter: why hasn’t
growing global population and growing demand for metals in developing countries
already exhausted our supplies of these metals? In addition, the growing public
opposition to the exploitation of shale gas in some countries finds a direct
parallel in similar opposition to domestic mining.
In a world without Peak Oil, the business interests of the oil
industry held oil prices to a secular price between US$ 10 and 30 per barrel
(2006 base year). This assured global oil addiction and little headway into
developing alternative sources of energy. Peak Oil has changed the picture, but
it has not negated the power or motive of the business interests of the oil
industry. With more limited ability to increase supply to meet increasing
demand, nonconventional oil is an essential part of
the current oil mix, and it has become increasingly difficult to stabilize oil
prices.
Nonetheless, the oil industry will try to do so because
it is necessary to see to it that oil prices do not go so high as to destabilize
the global economic system. The price of oil rose significantly and fluctuated
dramatically in the first decade of the twenty-first century, but now it seems
to have stabilized around US$ 100 per barrel in current dollars.
To be sure, we can point to many proximate causes of
this price increase, not the least of which is political instability in the
Middle East and Peak Oil. But, if we were inclined to think in broader terms,
that is, based on the distinction between business and industry, it is quite possible
to conclude that we have now stabilized around a new secular price of oil. Our
interpretation of the price is important. It is high enough to solicit the
development of oil with higher lifting costs (now a necessary addition to oil
supplies), but low enough to continue to sustain our global oil addiction
without altering the current economic order, and its reliance on oil. Thus, it
is both strategic and an indication that we have reached a different point in
our historical relationship with oil. It is a sign that we are reaching Peak
Oil; but, it does not mean an abrupt end to our addiction to oil or the
economic order that sustains it and gives it expression. There will be every
effort made to sustain the new secular price for as long as possible. And, the
new secular price of oil and the institutional realities out of which it
emerges will have everything to say about our transition out of the Age of Oil.
It is not productive to characterize our present situation as an
indictment of the oil industry. The oil industry is simply operating as a going
business concern, and those who participate are simply doing what they are
legally allowed and economically encouraged to do. As Veblen reminds us, “There
is nothing gained by finding fault with any of this businesslike enterprise
that is bent on getting something for nothing, at any cost. After all, it is
safe and sane business, sound and legitimate, and carried on blamelessly within
the rules of the game.” It is much better to couch our criticism of our situation
in the context of our economic order and its institutional realities.
In a rational world, where petroleum engineers were calling the
shots, the production, distribution, and uses of petroleum would be far
different. Would we, in such a world, even be using oil? Surely, if the control
of our industrial capabilities were not under the domination of business
interests, we would have begun the transition out of oil long ago. In the words
of the petroleum geologist Kenneth Deffeyes, “World oil production has stopped
growing; declines in production are about to begin. For the first time since
the Industrial Revolution, the geological supply of an essential resource will
not meet the demand. There has been plenty of warning…. Fifteen years ago, we
should have started investing heavily in alternative energy strategies. That
opportunity is now lost. There is no time left for scholarly research.
There is no time left for engineers to develop new machinery.” The
warnings could have been communicated by prices in a competitive market; but of
course, they were not. But in today’s world, competitive markets have nothing
to do with the market economy that exists. As Walt Kelly’s comic strip
character, Pogo, once said, “We have met the enemy and he is us.”
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