Peak Oil - US Gets Another Wake Up
This afternoon, the U.S. Government Accountability Office released a report regarding the great uncertainty surrounding the peak and decline of global oil extraction. All in all, much of the GAO report will sound familiar to those who are well informed on peak oil. To the layman, particularly the U.S. congressmen and staffers, who are the primary audience for this report, a bit of clarification is in order.
The report can be found here in its entirety.
http://www.gao.gov/new.items/d07283.pdf
A few points that were stated as givens...
1. We are extracting the oil as fast as we can. There is no spare capacity.
2. Demand is rising faster than supply.
3. This is causing increases in the price of oil.
4. Oil is a finite resource.
5. There will be a global maximum oil extraction rate.
6. After this maximum, extraction will decline permanently.
Findings of the report...
1. Peak may be happening now.
Based on the analysis and research I have done, we are currently at peak. Additionally, the peak is not as important as the rate of change of extraction. And this is not as important as the speed at which this rate changes.
For example, for much of the 80's and 90's, the extraction rate increased by 5% or so per year. This allowed the industrial and economic growth of those decades. Recently, this rate of increase moved from 5% or so to 4%, 3%, 2%, 1% and now 0%. The speed at which that happened is important, as much as the fact that we are globally extracting the same as last year.
A look at this data: http://www.eia.doe.gov/emeu/ipsr/t21.xls from the Energy Information Agency shows that global extraction did the following in the last four years, in million barrels per day.
2003 79.57
2004 83.00 4.3% increase - (OK)
2005 84.54 1.9% increase - (Uh oh)
2006 84.59 0.1% increase - (What's going on here?)
In other words, if we are not at peak now, then we are at a plateau. There was essentially no increase in the extraction rate from 2005 to 2006, despite the very motivating $60/barrel price of the oil. Amazingly, the EIA predicts 90 mbpd by 2009. This prediction is probably based on what we NEED, not what we can actually physically extract.
2. The GAO report points out that there are multiple factors that determine the global peak. I expand them below.
a. amount of oil in the ground
b. amount which can be extracted economically
c. amount which can be extracted physically, with current (or future) resources & technology
d. amount which can be extracted for less energy then it takes to extract
e. amount we chose to protect the environment
f. amount that is in countries that are willing to extract
g. amount of money and resources that can be used for extraction
The GAO report basically lays out that it is becoming increasingly difficult to extract oil from the ground, because there is less still in the ground, it is taking more energy and resources to extract, the resources for extraction (wells) are limited, and geo-politics and environment both play significant roles.
The report states, in the opposite order of causation, that economy will drive demand. On the contrary, the extraction rate will determine the economy. The report actually goes into this when it mentions the global recession that may (read "will") result if peak oil is soon, and if the decline is rapid.
The report stops short of using the terms "depression", "hyper-inflation" and "collapse of economy", but that is a very real possibility. All of these have happened before, and within the last 100 years, in multiple countries. The difference this time is that not only will it be global, but there will never be a recovery, only a continued downward roller coaster from this high energy lifestyle, to a very low energy lifestyle.
There is much more to GAO report. Read it carefully for what it says, and what it leaves out.
The report can be found here in its entirety.
http://www.gao.gov/new.items/d07283.pdf
A few points that were stated as givens...
1. We are extracting the oil as fast as we can. There is no spare capacity.
2. Demand is rising faster than supply.
3. This is causing increases in the price of oil.
4. Oil is a finite resource.
5. There will be a global maximum oil extraction rate.
6. After this maximum, extraction will decline permanently.
Findings of the report...
1. Peak may be happening now.
Based on the analysis and research I have done, we are currently at peak. Additionally, the peak is not as important as the rate of change of extraction. And this is not as important as the speed at which this rate changes.
For example, for much of the 80's and 90's, the extraction rate increased by 5% or so per year. This allowed the industrial and economic growth of those decades. Recently, this rate of increase moved from 5% or so to 4%, 3%, 2%, 1% and now 0%. The speed at which that happened is important, as much as the fact that we are globally extracting the same as last year.
A look at this data: http://www.eia.doe.gov/emeu/ipsr/t21.xls from the Energy Information Agency shows that global extraction did the following in the last four years, in million barrels per day.
2003 79.57
2004 83.00 4.3% increase - (OK)
2005 84.54 1.9% increase - (Uh oh)
2006 84.59 0.1% increase - (What's going on here?)
In other words, if we are not at peak now, then we are at a plateau. There was essentially no increase in the extraction rate from 2005 to 2006, despite the very motivating $60/barrel price of the oil. Amazingly, the EIA predicts 90 mbpd by 2009. This prediction is probably based on what we NEED, not what we can actually physically extract.
2. The GAO report points out that there are multiple factors that determine the global peak. I expand them below.
a. amount of oil in the ground
b. amount which can be extracted economically
c. amount which can be extracted physically, with current (or future) resources & technology
d. amount which can be extracted for less energy then it takes to extract
e. amount we chose to protect the environment
f. amount that is in countries that are willing to extract
g. amount of money and resources that can be used for extraction
The GAO report basically lays out that it is becoming increasingly difficult to extract oil from the ground, because there is less still in the ground, it is taking more energy and resources to extract, the resources for extraction (wells) are limited, and geo-politics and environment both play significant roles.
The report states, in the opposite order of causation, that economy will drive demand. On the contrary, the extraction rate will determine the economy. The report actually goes into this when it mentions the global recession that may (read "will") result if peak oil is soon, and if the decline is rapid.
The report stops short of using the terms "depression", "hyper-inflation" and "collapse of economy", but that is a very real possibility. All of these have happened before, and within the last 100 years, in multiple countries. The difference this time is that not only will it be global, but there will never be a recovery, only a continued downward roller coaster from this high energy lifestyle, to a very low energy lifestyle.
There is much more to GAO report. Read it carefully for what it says, and what it leaves out.