Energy Crisis?

Is the world facing an imminent energy crisis? That’s the subject that’s been on my mind the past few weeks.

Conventional wisdom says we’re not. But there are enough dissenting voices to raise doubts in my mind, so I want to dig into it some more.

Obviously, it’s a hard question to answer. I don’t have any background, personal connection or other insight into the energy business. I’m dependent on finding out what other people think. And chances are, nobody really knows. A lot of people act like they do, but their predictions are all over the map. Everyone has their own set of biases to color their thinking; something that must be taken into account. I have my own biases. But I can read, I have access to good libraries and the Internet, and (hopefully) I can think critically, so I’ll see what I can figure out.

Here is the argument supporting a near-term energy shortage in the world, as I understand it.

It all starts with oil, because of its centrality to our modern industrial infrastructure, its being the resource most in danger of having imminent shortages. There are many other energy sources, but none with the ability to support our current transportation infrastructure (names, cars, trucks, and airplanes).

Oil is a fossil fuel, and is created naturally, but slowly. The world’s current reserves took millions of years to build up. We are depleting them faster than they grow, so logically it is just a matter of time until we exhaust the supply.

Oil production is peaking. U.S. output peaked around 1970. The North Sea oilfields are peaking currently (see http://www.eia.doe.gov/emeu/cabs/North_Sea/Oil.html). For another example, the data for Venezuela (one of the top four exporters of oil to the U.S.) is unclear, but it appears to have peaked by 2000 (see http://www.eia.doe.gov/emeu/cabs/Venezuela/Oil.html). The big wildcard here is Saudi Arabia, where production numbers aren’t publicly released, but there is evidence that they are peaking as well. (Note: isn’t the Internet awesome? In the old days, you’d have one person saying ‘X’, another saying ‘Y’, and you just have to pick whom you trust more. It’s great having real, relatively unbiased data out there, so we can all draw our own conclusions.)

After oil production peaks, it drops, often symmetrically, as fast as it rose in the beginning. Production graphs are generally in the shape of a bell curve. For example, here is a chart of U.S. production over time. It's quite striking.



From Beyond Oil, Kenneth Deffeyes, 2005.

I couldn’t find all of the numerical data online, but a table of the numbers from 1954 on is available at http://www.eia.doe.gov/emeu/aer/txt/ptb0502.html.

If this is true, we have declining production meeting a rising oil demand. That can’t be good.


The annual oil discovery rate is dropping. In fact, oil discoveries peaked in the 1960’s and have been declining since, and are currently well lower than consumption rates. For example, in 2002, six billion barrels of new oil were discovered. But the world consumed 27 billion barrels of oil that year. (Source: The End of Oil, Paul Roberts) While this doesn’t directly imply a near-term crisis, it does lend weight to the idea that oil’s time is limited.

Gasoline prices are at an all-time high, even in inflation-corrected dollars. Why is this the case if the world has plenty of oil?


Each of those assertions can be debated. When we continue: why all of that is wrong.