Articles tagged with "peak oil"
This is a guest post by James Hamilton, Professor of Economics at the University of California, San Diego. This post originally appeared on the Econbrowser blog here.
Those behind the theory appear to have been dead wrong, at least in terms of when the peak would hit, having not anticipated the rapid shift in technology that led to exploding oil and natural gas production in new plays and areas long since dismissed as dried up.
These comments inspired me to revisit some of the predictions made in 2005 that received a lot of attention at the time, and take a look at what's actually happened since then.
Most of us have heard that Thomas Malthus made a forecast in 1798 that the world would run short of food. He expected that this would happen because in a world with limited agricultural land, food supply would fail to rise as rapidly as population. In fact, at the time of his writing, he believed that population was already in danger of outstripping food supply. As a result, he expected that a great famine would ensue.
Most of us don’t understand why he was wrong. A common misbelief is that the reason he was wrong is that he failed to anticipate improved technology. My analysis suggests that there were really two underlying factors which enabled the development and widespread use of technology. These were (1) the beginning of fossil fuel use, which ramped up immediately after his writing, and (2) a ramp up in non-governmental debt after World War II, which enabled the rapid uptake of new technology such the sale of cars and trucks. Without fossil fuels, availability of materials such as metal and glass (needed for most types of technology) would have been severely restricted. Without increased debt, common people would not have been able to afford the new types of high-tech products that businesses were able to produce.
This issue of why Malthus’s forecast was wrong is relevant today, as we grapple with the issues of world hunger and of oil consumption that is not growing as rapidly as consumers would like–certainly it is not keeping oil prices down at historic levels.
What Malthus Didn’t Anticipate
Malthus was writing immediately before fossil fuel use started to ramp up.
I, along with my editor Sam Avro, recently conducted a broad-ranging interview with John Hofmeister, former President of Shell Oil. The topics touched upon included future oil supplies and prices, climate change, U.S. energy policy, and topics familiar to R-Squared Energy readers such at Peak Lite and the Long Recession.
I will present this interview in a series of stories covering some of the various topics. In this first story, I will discuss Mr. Hofmeister’s detailed answer to the question, “What do you feel is the potential for expanding global oil production, and the time frames?”
Readers may recall that I have put forth a pair of hypotheses with respect to future oil production and prices. One is called Peak Lite. (See also: Five Misconceptions About Peak Oil)
The usual assumption that economists, financial planners, and actuaries make is that future real GDP growth can be expected to be fairly similar to the average past growth rate for some historical time period. This assumption can take a number of forms–how much a portfolio can be expected to yield in a future period, or how high real (that is, net of inflation considerations) interest rates can be expected to be in the future, or what percentage of GDP the government of a country can safely borrow.
But what if this assumption is wrong, and expected growth in real GDP is really declining over time? Then pension funding estimates will prove to be too low, amounts financial planners are telling their clients that invested funds can expect to build to will be too high, and estimates of the amounts that governments of countries can safely borrow will be too high. Other statements may be off as well–such as how much it will cost to mitigate climate change, as a percentage of GDP–since these estimates too depend on GDP growth assumptions.
If we graph historical data, there is significant evidence that growth rates in real GDP are gradually decreasing. In Europe and the United States, expected GDP growth rates appear to be trending toward expected contraction, rather than growth. This could be evidence of Limits to Growth, of the type described in the 1972 book by that name, by Meadows et al.
Figure 1. World Real GDP, with fitted exponential trend lines for selected time periods. World Real GDP from USDA Economic Research Service. Fitted periods are 1969-1973, 1975-1979, 1983-1990, 1993-2007, and 2007-2011.
Trend lines in Figure 1 were fitted to time periods based on oil supply growth patterns (described later in this post), because limited oil supply seems to be one critical factor in real GDP growth. It is important to note that over time, each fitted trend line shows less growth. For example, the earliest fitted period shows average growth of 4.7% per year, and the most recent fitted period shows 1.3% average growth.
In this post we will examine evidence regarding declining economic growth and discuss additional reasons why such a long-term decline in real GDP might be expected.
The International Monetary Fund (IMF) recently issued a new working paper called “The Future of Oil: Geology versus Technology” (free PDF), which should be of interest to people who are following “peak oil” issues. This is a research paper that is being published to elicit comments and debate; it does not necessarily represent IMF views or policy.
The paper considers two different approaches for modeling future oil supply:
- The economic/technological approach, used by the US Energy Information Administration (EIA) and others, and
- The geological view, used in peak oil forecasts, such as forecasts made by Colin Campbell and forecasts made using Hubbert Linearization.
The analysis in the IMF Working Paper shows that neither approach has worked perfectly, but in recent years, forecasts of oil supply using the geological view have tended to be closer than those using the economic/technological approach. Since neither model works perfectly, the new paper takes a middle ground: it sets up a model of oil supply where the amount of oil produced is influenced by a combination of (1) geological depletion and (2) price levels.
This blended model fits recent production amounts and recent price trends far better than traditional models. The forecasts it gives are concerning though. The new model indicates that (1) oil supply in the future will not rise nearly as rapidly as in the pre-2005 period and (2) oil prices are likely to nearly double in “real” (inflation-adjusted) terms by 2020. The world economy will be in uncharted territory if this happens.
It seems to me that this new model is a real step forward in looking at oil supply and the economy. The model, as it is today, points out a definite problem area (namely, the likelihood of oil high prices, if growth in oil production continues to be constrained below pre-2005 rates of increase). The researchers also raise good questions for further analysis.
At the same time, I am doubtful that the world GDP forecast of the new model is really right–it seems too high. The questions the authors raise point in this direction as well. Below the fold, I discuss the model, its indications, and some shortcomings I see.
Posted by Gail the Actuary on April 18, 2012 - 10:50am
Topic: Alternative energy
Tags: alternative energy, biofuel, biophysical economics, book review, charles hall, kent klitgaard, limits to growth, peak oil, robert rapier [list all tags]
Today, I’d like to write about two fairly different books related to limited energy supply. Both are excellent, but intended for fairly different audiences, and focusing on different aspects of our dilemma.
1. “Power Plays: Energy Options in the Age of Peak Oil” by Robert Rapier.
This book is written at a fairly introductory level, giving information about the many energy options we have, and the trade-offs we make as the result of our choices of energy options. The book is not about peak oil per se, but includes a chapter on peak oil as well as a chapter on climate change. The book ends with the chapter, “The Road Ahead." The book is inexpensive–$16.15 from Amazon.
2. “Energy and the Wealth of Nations: Understanding the Biophysical Economy” by Charles Hall and Kent Klitgaard
This book is focused on energy and economics. This book seems to be aimed as a text book, or at an audience who is already familiar with some of the issues, and wants to dig deeper. This book is in two column format with questions at the end of each chapter to facilitate classroom discussion. It covers in depth a wide range of topics, from energy’s role throughout history, to the relationship of energy to wealth production, to energy return on investment, to how to do biophysical economics, to peak oil. It ends with the chapter, “Living a Good Life in a Lower EROI Future.”
Below the fold, I will talk a little more about each.
This is a guest post by Dean Fantazzini, Moscow School of Economics, Moscow State University, Moscow, Russia; Mikael Höök, Uppsala University, Global Energy Systems, Department of Physics and Astronomy, Uppsala, Sweden; and André Angelantoni, Post-Peak Living, San Francisco, CA. This paper has been previously published in Energy Policy, Volume 39, Issue 12, December 2011, Pages 7865-7873.
The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.
Some of you may be aware that I am writing a book - the title is Power Plays: Energy Options in the Age of Peak Oil. While I have contributed several chapters to books in the past, this is my first full book, and I only recently learned that the publication process is moving much faster than I had imagined. I signed the book contract in August 2011, and we were targeting completion of the book by year-end 2011. My assumption was that it would probably take months to get final edits, artwork, etc. completed and that it might go on sale during the second half of 2012, but I wouldn’t have been surprised to learn that it wouldn't be available until 2013.
However, I recently learned – to my great surprise – that the book is already for sale at a number of outlets, including Amazon, and that release is scheduled for March 15th, 2012. So I am really feeling the pressure at this point. Right now I have to turn in the final chapters and edits by January 15th. That means I have 2 weeks left to make adjustments. I still have to write three chapters, but a lot of that work is done. The book is supposed to be 250 pages, and I have about 180 written. But nothing is set in stone until January 15th.
Posted by Euan Mearns on December 21, 2011 - 3:29pm
Tags: aldous major south, avaldsnes, declines, giant field, lundin petroleum, north sea, norway, npd, peak oil, statoil [list all tags]
With relatively little fanfare on the international stage, Lundin Petroleum and Statoil (and partners) have just recently jointly discovered one of the largest oil fields ever found in the North Sea. The Aldous Major South - Avaldsnes discovery on the Utsira High structure is currently estimated to contain 1.7 to 3.3 billion barrels of recoverable oil. The astonishing thing about this discovery is that it has lain undiscovered in a mature oil province for so long providing ample encouragement for explorers to go on exploring.
The recoverable resource estimates have grown with every well drilled and with a new delineation well spudded on 28th November, further news on the size of this giant is expected in early January.
This post is joint with Rune Likvern. One of us (EM) owns common stock in Lundin Petroleum.
I recently attended the annual ASPO conference in Washington, D.C. This was only my 2nd ASPO conference; the other one I attended was in 2008 in Sacramento. There were many familiar faces, some of whom I had previously met and some I only knew by reputation. The mood seemed remarkably calmer than in 2008. That year, oil prices were just coming down from record highs, a pair of hurricanes were causing spot gasoline shortages, and the economy was headed into the toilet. The general mood was that things were rapidly unraveling. Three years later, the long-term outlook isn’t really any different, but I think some who predicted imminent doom are starting to change their views on how things are going to play out.
I noted during one of my talks that I don’t even like the term “peak oil.” That is because there are a number of misconceptions and negative connotations associated with it. I prefer to talk in terms of resource depletion and a supply/demand imbalance that includes multiple elements – all of which combine to keep upward pressure on oil prices. So what are those misconceptions about peak oil? Below are the ones I think are most common.