The Optimists Are Wrong

Ok; in previous posts I laid out the arguments that the world is headed towards an imminent energy crisis, and then presented the arguments against that position. Now let me rebut those counter-arguments. After that, I just may get around to stating what my actual opinions are.

· The U.S. government and OPEC forecast plenty of oil reserves for the next thirty years.

Both sources are suspect. George W. Bush and Dick Cheney are ex-oil men, and deeply believe in the future of oil. They would not drive this country in any direction that would either offend their petro-compatriots or cost them money.

OPEC determines quotas for member countries by calculating the ratio of each country’s oil reserves to the OPEC total. Therefore each country has a significant motivation to exaggerate the status of their reserves. Moreover, some OPEC nations, in particular Saudi Arabia, do not let independent analysts verify their claims.

Oil reserve figures are also suspect in the sense that nobody really knows how economical it is to retrieve the dregs of an oil field (take your pick: the last 10, 20, 25 percent).

There are plenty of projections from different sources; for example geologists and oil companies, showing peaks between now and the next ten years.

· There are plenty of alternative energy sources to take the place of petroleum.
The responses here fall into two categories. There are questions as to whether the known alternatives can scale enough to the levels needed.

To go through the list of alternatives and knock them down:
o Hydroelectric – pretty much maxed out in the U.S. Destructive to riparian ecologies.
o Natural gas – continental North American production is already peaking. Natural gas can be shipped, but that’s expensive and dangerous. It’s still a fossil fuel, and while there might be a few decades worth of supplies, we’ll run out of natural gas too. Also, burning gas contributes to global warming.
o Nuclear – can’t dispose of the waste safely; it pollutes and can be stolen by terrorists. The known supply of uranium in the world is limited; will only supply us with a few decades of power. The U.S. hasn’t built a new nuclear plant in 20 years anyways.
o Solar – not cost-effective, and not dense enough; you’d have to cover some crazy percentage of the U.S. with photovoltaic cells to replace our fossil-fuel power plants. The power source is intermittent. Takes oil to create the materials anyways.
o Ethanol – our mech-heavy agricultural techniques consume huge amounts of oil between fertilizers, cultivation machinery, and transportation. If it takes more than a barrel of oil to synthesize a barrel of oil, what’s the use? Ethanol is only currently viable because of massive government subsidies which hide the inefficiency.
o Coal – contributes significantly to global warming. It’s still a fossil-fuel, so we will run out of that. Requires oil to mine and transport.
o Wind – rapidly growing in effectiveness, but not dense enough, and the source is too intermittent. Takes oil to construct and maintain the infrastructure.

Even if some of these can carry the load, it is doubtful that they can be ramped up quickly enough to compensate for rapidly decreasing supplies of oil.

There are also arguments that for some applications cheap oil is irreplaceable; in particular, transportation. For example, it would be hard to design a coal or electric-powered airplane. Cheap oil underlies our civilization’s infrastructure; particularly for transportation and materials (namely plastics).

· Oil discovery rates are declining in spite of increased exploration efforts.

This argument is aimed at “the economists” who argue that discovery and retrieval efficiency will improve as the price of oil increases. Oil is plenty valuable already, and oil exploration has continued at a feverish pace over the last twenty years. We aren’t finding much new oil simply because there isn’t that much more to find. Oil companies are very worried about this.

It’s also worth noting where the new oil is being found. Generally, that would be offshore and in the Arctic. The places that have already been well-explored, such as the continental U.S., are not yielding much in new discoveries. Once we finish exploring the unexplored, that may be it.

(A partial counterargument here. According to Roberts in The End of Oil, the multinational oil companies are so big that they need huge discoveries to maintain their growth. As such, they aren’t interested in any finds under a billion barrels. This will change if supplies grow tighter.)

Here is a secondary argument, also in reference to the economists. True, advanced techniques are greatly improving the fraction of oil that can be extracted from a reservoir. But think about how that impacts the production curve. The area under the curve stays the same, but you are extending the peak level. This implies that at some point the drop-off is going to be even more sharp. To put it more dramatically, if production techniques were perfect and could suck an oil field dry, how much oil would you get the year after you did that? Yikes.


On some more peripheral topics:
· There is no oil refinery shortage.
Even though new refineries are not being built in the U.S., capacities have been steadily growing and keeping up with demand. If there was a bottleneck, the vast sums of money involved would have found ways to get new refineries built.

In fact, some peak oilers argue that the fact that new refineries aren’t being built in the U.S. proves that oil companies know the production peak is imminent. If they expect huge increases in production, wouldn’t they invest in more refinery capacity?


· Cartels and corporations can manipulate the supply to drive up prices, but that is irrelevant.
So maybe the price of gas is twice what it would be if the market were free. That’s interesting, but it doesn’t address the question of how much oil is left in the ground.