Peak Oil

NY Times Keeps Head in Sand on Peak Oil

By Ryan McGreal
Published September 29, 2009

The web is abuzz over an upbeat report recently published in the New York Times that suggests concerns about Peak Oil are premature:

While recent years have featured speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder. They say that prices and the pace of technological improvement remain the principal factors governing oil production capacity.

Among the responses I have seen online, perhaps the most compelling is a post on The Oil Drum by Richard Heinberg that punctures the main assertion of the article:

The ten billion barrels of new discoveries reported so far do initially sound encouraging: if the second half of 2009 is as productive, that means a total of 20 billion barrels of new oil will eventually be available to consumers as a result of discoveries this year. But how much oil does the world use annually? In recent years, that amount has hovered within the range of 29-31 billion barrels. Therefore (assuming continued good results throughout 2009), in its most successful recent year of exploration efforts, the oil industry will have found only two-thirds of the amount it extracted from previously discovered oilfields.

Heinberg adds that the heroic discoveries this year occurred in response to the equally heroic oil prices up to mid-2008. The oil that this wave of exploration has discovered is expensive - below an oil price somewhere around $70 per barrel, the oil discovered this year will actually lose money for any companies that produce it.

Worse, it requires oil prices that are higher still to trigger the expensive exploration activities that discover it in the first place.

This represents a conundrum: the industry is only able to discover significant new sources of oil in response to a price point that drives the global economy into chaos - and even then, it can only manage to find two-thirds of what the world will consume over the same period.

These are the horns of the global oil industry's dilemma: it seems we can have either oil prices that are low enough to allow the global economy to function, or oil prices that are high enough to spur new exploration and development (albeit not necessarily enough to replace annual drawdown), but not both.

Peak oil, as its supporters have argued for years, is not about the oil running out: it's about the point at which the world cannot continue to increase the rate of oil production without punishing price spikes that derail economic growth.

All of the available evidence, including that produced by peak oil deniers, supports the conclusion that we have arrived at that point. We will see further evidence of this once the global economy recovers, demand picks up, and oil prices once again start lurching upwards.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan wrote a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. His articles have also been published in The Walrus, HuffPost and Behind the Numbers. He maintains a personal website, has been known to share passing thoughts on Twitter and Facebook, and posts the occasional cat photo on Instagram.


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By jason (registered) | Posted September 29, 2009 at 18:26:37

it's amazing how these guys can make statements that 100% support peak oil while trying to dismiss it.

we know there's hard to find oil all over the place and that extracting it will be difficult. That's the whole point. Until now oil companies have enjoyed the free flow of easy, cheap oil. As it hits its peak while demand continues to increase (during increasingly shortened good economic times) oil companies are forced to start shelling out huge bucks in order to get access to the harder to reach stuff. Their 'huge bucks' will result in huge costs to the rest of us causing either a) shortages, b) conservation or c) more economic downturns.

We know that business and government refuse to go down route b, so what we'll see it lots of a and c.

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By grassroots are the way forward (registered) | Posted September 29, 2009 at 19:17:33

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By A Smith (anonymous) | Posted September 30, 2009 at 07:03:37

China uses much more oil/dollar of GDP than the developed economies do and yet they keep growing at 8-10% a year.

The reason for this is because they are being tough on themselves, exactly the opposite of what Harper's Canada and Obama's U.S.A are doing. Whereas China is saving and investing for the future, Americans are trying to consume themselves wealthy.

If and when the U.S goes back to investing and cuts back on it's high consumption levels, growth will return, as will jobs and real wages. Nothing in life is free, therefore if you want to consume everything you produce, you cannibalize future economic growth.

To tie this back to Hamilton, if the city started running a surplus, we too would see a faster growing local economy.

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By studownunder (anonymous) | Posted September 30, 2009 at 11:42:26

The fact that big oil companies are even willing to go after oil that is 34000 feet beneath the ocean that will only be extracted by use of ultra high tech and ultra expensive methods and years and years of planning, building the infrastructure etc.........means......there is no easy oil left to find or extract. Or do you think that they are taking the harder more expensive path because they like the challenge?

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By jason (registered) | Posted September 30, 2009 at 12:46:35

yea, I wish we could be more like China.

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By A Smith (anonymous) | Posted October 01, 2009 at 02:52:23

Studownunder >> do you think that they are taking the harder more expensive path because they like the challenge?

No, my point about China is that it IS possible to have robust economic growth, even though oil prices are high. Their economy uses much more oil/$GDP, yet it keeps producing ever more goods and services.

In contrast, U.S. and Canada, predominantly service based economies (79.6% and 69.6% respectively), use much less oil in the production of GDP, yet they're growing much slower than China.

Therefore, if the theory is that oil prices determine economic growth, shouldn't China be growing slower than North America? If cheap oil is the main determinant in fueling the wheels of production, China's economy, which uses far more oil to produce the same amount of GDP, should be a disaster. However, this isn't the case.

One big difference between China and North America is the level of savings. In the latest quarter, the U.S. had a negative savings rate of 3% of Gross National Income. This means that the U.S. is actually consuming more than they earn. The only other time this took place in recent history was during the Great Depression.

In contrast, during the post war boom period, the U.S. saved around 9-10% of GNI.

Even during the boom period of the late nineties, net savings only reached 7.1% of GDP. Therefore, if Obama or Harper or any other leader wants to help grow their economy, they need to invest in the future, rather than just give handouts. This requires toughness and resolve, but if they do what's right, the economy will enjoy robust economic growth and the voters will reward them with greater respect.

Here is the link for net savings/GNI...

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