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Cheap Oil: How Much Longer Can We Go On Like This?   (July 14, 2005)

It's been 35 years since the first doom-and-gloom predictions for worldwide famine and exhaustion of natural resources entered the culture, and every decade has mocked the predictions as wildly inaccurate. Nitrogen fertilizers and cheap oil have staved off world hunger, and the exhaustion of natural resources keeps getting pushed off into the distant future.

Now comes Kenneth Deffreyes, Princeton geologist and self-professed child of the Oklahoma oil fields, saying we're already at the end of rising oil production (and hence of cheap oil) in his new book Beyond Oil : The View from Hubbert's Peak.

According to Deffreyes, the optimistic view that oil production won't stop growing until 2036 or beyond is unsupported by the facts. He isn't saying the world is running out oil; what he's saying is the world is running out of cheap, easily accessible oil in large fields which can produce the 82 million barrels of oil humanity burns each and every day.

Yes, more can be recovered from existing wells and more can be found--but not 82 million barrels a day's worth. Put simply, demand will outstrip supply for the first time ever, and the world is poorly placed to deal with that reality. In the short-term, a deep global recession could set back demand enough to create a temporary oil surplus, thus dropping prices; but as the accompanying chart indicates, the long-term trend is up.

Deffreyes then spends the rest of the book looking at alternative sources of energy: natural gas, hydrogen (not an energy source but a way of storing energy), solar, biofuel, etc. He suggests we should have started work on this stuff 10 years ago, and now it's too late. Many people put their faith in the "market," that is, the interaction of price with supply and demand. Once oil goes to $100 a barrel, then alternatives will surface. That may well be true, but how long will the market take to create an alternative energy source for 50 million barrels of oil a day? There are physical limits on many alternatives.

To take just one example: the tar sands of Canada. There's as much sludgy oil in sand in Western Canada as there is in Saudi Arabia, we're told; fantastic news for SUV owners everywhere! But the bloom comes off the rose once you start looking at production costs, the physical work required to mine the shale, extract the oil and then put the mountain of tailings somewhere approximating its original setting.

But the key fact is this: production from the Canadian oil-shale fields is currently about 1 million barrels a day, with production expected to rise eventually to perhaps 5 million barrels a day--about 23% of U.S. needs (not to mention Canada's). And of course China is a big investor in Canadian oil fields, so a significant percentage of that production will be pumped into tankers heading for China.

I myself would go for the option of covering every roof in the U.S. with solar arrays. New solar cell technology enables printing the collectors on flexible plastic sheeting (made from oil, of course) which bypasses the current technology's need for silicon and glass. This would reputedly generate about 700 MWatts of the 900 MWatts of electrical power the U.S. uses every day. But that technology is still in its infancy, and the cost of covering 50 million roofs would naturally be substantial. Somebody would have to get the ball rolling, as California is considering doing with a tax credit/subsidy.

Bottom line: if Deffreyes is right--and read the book before dismissing his analysis--then we are collectively going to run out of cheap and plentiful oil long before technological marvels are in production to replace the missing millions of barrels of oil. The best hope seems to be chipping away at the deficit with some of everything: conservation being number one, and then alternative sources: more natural gas, biodiesel, solar, geothermal, you name it. Still, it appears likely there will be a "crunch time" as oil production drops and alternatives are not yet in place.

Readers of this blog know that the window of 2007-2012 appears on long-term charts as the probable timeframe for a global financial depression. Could the proximate cause be the shortfall between the world's demand for oil and its dwindling production? After read Deffreyes' analysis, you might not be so sanguine.

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copyright © 2005 Charles Hugh Smith. All rights reserved in all media.

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