The Most Important Resource for Our Future: Inexpensive Oil (but its not really available)

Our economy runs on oil. Most of the tractors used for growing food run on oil. Nearly all of today’s cars and trucks run on oil. It is popular to talk about changing to some other fuel, but the practicalities are that any such change will be very slow. There is a huge cost associated with replacing cars and trucks with vehicles using other fuels, assuming we could figure out the technology to do this.

Since 2005, world crude oil supply has bumped up against what seems to be a limit of 75 million barrels of oil a day. No matter how hard companies try to extract more crude oil, and no matter how high world oil prices rise, they seem unable to extract more than 75 million barrels a day (MBD).

World Crude Oil - Quantity Extracted and Price

Figure 1. World crude oil production has been bumping up against a limit of about 75 million barrels a day (MBD) since 2005, as oil prices have gyrated wildly. (EIA data)

The US Government is aware of this issue, and now issues data for Total Oil Supply. Total oil supply includes various other liquids that are somewhat like crude oil, including biofuels, natural gas liquids, and “refinery gain”. But even including the additional categories, growth in supply has been anemic. Oil prices started rising as early as 2004 because supply (whether defined as crude oil or more broadly) was not rising fast enough to meet increased demand around the world.

With world oil supply virtually flat, countries have had to share what oil is available. Since 1985, there has been a big shift in which countries are the “winners” in the way the world’s limited oil supply is divided (Figure 2).

Line graph of oil consumption by area, based on EIA data.

Figure 2. Growth in oil consumption has varied greatly in recent years. The Former Soviet Union’s oil use dropped off after its break up in 1991. Europe, US, Japan, and Australia showed modest growth until 2005, followed by a drop off. Consumption of countries in “Remainder” (which includes China, India, and oil exporting countries) has risen rapidly since 1985. (Based on EIA data)

Clearly the “winners” in the contest for who is able to buy the oil are the “Remainder” countries—countries like China and India and Korea, and the oil exporting nations.

Over the period 1985 – 2010, the grouping “Europe, US, Japan, Australia” experienced an average real GDP growth rate of 2.4%; the Remainder group experienced an average growth rate of 4.7%. The Former Soviet Union experienced a peak to trough drop in real GDP of 41% after its breakup in 1991. The grouping Europe, US, Japan, and Australia experienced a major dip in oil consumption and a serious recession in 2008-2009, while the Remainder countries continued to grow.

High oil prices are clearly a problem for oil importing countries, because funds that would have been used for discretionary spending suddenly need to be used for necessities—food that is grown and transported using oil, and gasoline used for commuting to work. It is precisely the big oil importing countries that have tended to have a problem with reduced economic growth when oil prices are high.

In my view, what the world needs now is inexpensive oil, and lots of it. What we need is enough inexpensive oil to bring oil prices back down to $20 to $30 dollars a barrel, like it was in the 2001 to 2003 period. If we had inexpensive oil in this large quantity, there would be plenty of oil to go around. It wouldn’t be only the oil exporters and the countries with large coal-based manufacturing industries that would be able to consume as much oil as they need for economic growth. Countries like Greece and Spain, which need low oil prices to stoke world tourism, would be able to consume their share of the oil as well.

One issue is of concern is the connection between economic growth and debt.

What happens if economy stops growing

Figure 2. Two views of future economic growth

If an economy is growing, as in Scenario 1, it makes financial sense to borrow money, even if it is necessary to pay it back with interest. Borrowing makes it possible to “pre-spend” a little of the economic growth that will be available in the future. This relationship is especially important for governmental borrowing, but it also plays a role for private borrowing.

If an economy is shrinking, it is hard to make a case for borrowing. In such a case, the future is likely to have less to offer than what we have today. This might happen if there is not enough oil to go around, and oil prices are very high (at least until recession hits).

A great deal has been said about decoupling economic growth from natural resource use. It is not clear to what extent this really is possible. We can move manufacturing to the Far East, and pretend that the resource use isn’t ours, but on a world basis, during the past decade, energy use has been rising as fast as world real GDP. This has happened largely because Asian growth in energy use has offset savings elsewhere.

Theoretically, if world oil supply is inadequate, we should be able to make substitutions that would work—either find a different liquid fuel to substitute for oil, or create new vehicles or machines that use a different source of energy than petroleum products. The problem is that making these substitutions is a slow, expensive process.

We are currently using millions of cars, trucks, trains, airplanes, boats, and machines that require petroleum products to operate. Most of them are nowhere near the ends of their normal lives, so replacing them would be expensive.

Liquid biofuels we have developed are expensive. To solve our problem, they really need to cost $20 or $30 dollars a barrel to make.

What the world really needs now is a huge supply of inexpensive oil. It is not clear where we will find it, however.

(Note: This post was written in response to a request by Business Insider that I write a short editorial in response to the question, “What is the most important resource for our future?” It covers some of the main points in my new academic article in the journal Energy, “Oil Supply Limits and the Continuing Financial Crisis.” That article is temporarily available free at this link, or this one.)

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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64 Responses to The Most Important Resource for Our Future: Inexpensive Oil (but its not really available)

  1. Certainly inexpensive oil, but as far back as 1956 I encountered the claim – expressed by the McGill biologist N.J. Berrill – that the availability of phosphorus might place a limit on the ultimate human population.

    • There are actually any number of limits to human population, besides phosphorous–clean water, and too much pollution are high up there. Even if oil were free, we would quickly reach limits to growth. The point of this post is to get people who have not been thinking about the issue, thinking. In 1,000 words, a person can’t do much.

  2. There is an article in Onion today that is more than a little ironic: Scientists: ‘Look, One-Third Of The Human Race Has To Die For Civilization To Be Sustainable, So How Do We Want To Do This?’

    Saying there’s no way around it at this point, a coalition of scientists announced Thursday that one-third of the world population must die to prevent wide-scale depletion of the planet’s resources—and that humankind needs to figure out immediately how it wants to go about killing off more than 2 billion members of its species.

    Representing multiple fields of study, including ecology, agriculture, biology, and economics, the researchers told reporters that facts are facts: Humanity has far exceeded its sustainable population size, so either one in three humans can choose how they want to die themselves, or there can be some sort of government-mandated liquidation program—but either way, people have to start dying.

    • The Georgia Guidestones put it closer to 19 out of 20 people going out in the Big Liquidation.

      RE

    • one more thing pour Africans, they are not the ones putting all the stress on the planet

    • Is this article serious? I had never read the onion before. I think no matter what we do now population will decline, I don’t think it’s going to reach 9 billion by 2050. Life expectancy will probably be shorter due to lack of service and higher costs in hospitals and medicine, they are both energy intensive. Famine, riots in highly and densely populated areas where people depend 100% on the system to have their food, water and other basic needs. The task now is to manage a softer degrowth, but it won’t be accepted until reality kicks in. Meanwhile I would recommend only having one child if really desirable, adopting, or not having any. If I could apply a policy on this definitely would be only child and something like not prolonging life in serious chronic diseases after 70. I would be damn unpopular, but they will probably be there when reality kicks in.

      • No, the Onion does not write serious articles. I should have made that clearer for those who do not live in the United States. It writes what are intended to be humorous articles, but sometimes the articles have truths embedded in them that no one else would dare talk about.

    • sponia says:

      The really funny part is, they guessed too low. Actually, it’s closer to two out of every three people that have to die. Look at the guy on your left. Now look at the guy on your right. Both of them have to go, if you want to live.

      Not a very comfortable position to be in, for sure!

      But don’t get carried away by romance. You’re not going to see people dropping dead all of sudden, any more than they already are.

      What you will see is a drop in birth rates, instead.

      Anything less than replacement population means a drop in the number of living. A drop to zero birth rate will make the population fall pretty quickly. This is, I think I remember, what was observed in Russia after the economic troubles there last century.

      • sponia says:

        On Second (and third) consideration, I have to admit you’re going to see a lot more infant mortality, too.

      • I am guessing that deaths from epidemics will rise greatly. We won’t be able to keep spraying for mosquitos, so mosquito-borne illnesses will rise, for example. More and more people will drop out of the health care system. Dmitry Orlov has talked about how people just sort of disappeared in Russia after the collapse of the USSR, dying of various illnesses. I think some of this will happen elsewhere as well.

  3. We might need inexpensive liquid fuels to continue pursuing the industrial paradigm, but most of the stuff which came cheap and easily bubbling up in Jed Clampett’s back yard has already been burned up. Unconventional sources are expensive, as are synthetic alternatives which might be produced by algae or from sedge grasses.

    So since such inexpensive fuels do not currently exist and are constrained in production by EROEI, they aren’t going to appear out of thin air. Thus one can conclude that the industrial paradigm based on such liquid fuels will not be sustained, and an alternative paradigm which does not require such Inexpensive Oil will be pursued.

    Thus, Inexpensive Oil is not Important for our future, since our future won’t be using it.

    RE

  4. Brian Cohen says:

    I agree that to grow, the economy needs inexpensive energy. I believe that is your point. However, since this seems unrealistic given that the peak seems to have past, doesn’t it make more sense to suggest that to accelerate investment in alternatives, what we really need is “expensive” oil? Yes this could mean a painful transition period but wouldn’t this benefit the long term? More expensive oil can be achieved through higher carbon taxes (in exchange for reductions in other taxes such as income taxes)? I would then suggest that subsidies for renewables be removed. If the carbon taxes are high enough, renewables could compete on more equal footing and it will incent both people to conserve energy as well as the private market to invest in renewables without conflict from government.

    • I think that expensive alternatives have been vastly over-sold. They may be helpful in some instances to individual homeowners (for example, for use pumping water), but in terms of helping society as a whole, they don’t do much. They aren’t really renewable–they just last until they wear out, and you have to replace them using fossil fuels. They can somewhat replace electricity (until they break), but they don’t do anything to replace oil. The cost/benefit for society as a whole does not seem to be there.

      We need to start adapting to the conditions we will have in the future, not to some little add-on to today’s economy that calls itself renewable, but isn’t really. In my view, we would be better off figuring out where we need to be without oil, and working to deal with that, than kidding ourselves that some adjustments to our electric system will make a difference. (In the case of pumping water, we would be better off with a device that is sustainable with local materials–perhaps a small windmill.) The electric system will fail fairly quickly, in my view. Adding so-called renewables will do nothing to delay this failure, because they are only one part of this system, and are themselves subject to failure.

  5. Jan Steinman says:

    I’m glad you explained the intended audience. I was a bit incredulous, thinking someone needed to rebut your “what we need” assertion.:-)

    Think they will “get it,” or will they simply start calling for oil to be cheap again?

    We are currently financially entangled with someone who thinks that if he repeats a falsehood enough, it will somehow magically become true. I generally think of him as abnormal and deranged. But what if such behaviour is the “new normal?”

    • Shawn says:

      Hopefully people will “get it” but sadly most don’t. Gas and oil prices will rise.

      If they’re on the left, they’ll blame the “speculators.”

      If they’re on the right they’ll blame “regulations” and lack of drilling permits.

  6. Cheap oil, of course. And we also need another planet with lots of natural resources (perhaps two or three of them) or a mass suicide (Any volunteer?).

    Nice post. Again.

  7. Bob Carver says:

    Do we really want history to repeat, just like the dip in oil prices to $10/bbl in 1998 after the spike to $40/bbl in 1980? If we get a drop in oil prices which is not caused by viable alternative energy competitors, those alternatives will simply cease to exist, just as happened following the original Arab embargo. No, what we don’t need is inexpensive oil. We need to be forced by economic necessity to create the alternatives that will free us from our bondage to unstable and unfriendly sources of energy. Only expensive oil prices seem to be the right incentive to do this. Otherwise, we simply become lazy grasshoppers, unprepared for the next winter.

    • Actually, the alternatives that have worked through the ages are manual labor, with a little animal labor, water wheels, and small wind turbines mixed in. It doesn’t take terribly high oil prices to figure those out. We can aim to keep our current system going forever, but I don’t think we can do it.

  8. kiwichick says:

    cr#p

    what we need is to start facing reality

    that is that we live on a planet with limited resources and therefore limited capacity to sustain life, including human life

    we need to move towards stabilizing human population and then managing a controlled decline to a sustainable level of population which is probably less than 1 billion

  9. Bicycle Dave says:

    I finally finished “The Humans who went extinct – why Neanderthals died out and we survived” by Clive Finlayson who is an evolutionary ecologist with a Dr. of Phil. from Oxford and an expert on Pleistocene caves in Gibraltar. I highly recommend the book – here are a couple of snippets from the last two pages that should provide a little ammunition (and probably some annoyance) for several disparate POVs in recent discussions here:

    That very self-awareness gave humans their capacity for rational thought, to be conscious of the consequences of their actions, and the ability to remedy those that were detrimental in some way………………..If one thing makes us unique it is our awareness of our actions and our ability to change things if we choose to, but more often than not – we do not. Having spent our evolutionary lives trying to cope with change and finding ways of handling and cheating the unpredictable future, now that we have it in our hands to change the future we procrastinate or choose not. The reason lines in that internal tension in all of us that wrestles between self and our neighbour, between individual gain and the higher gains to be had from working in a team.
    ……..
    We have also seen throughout this book how we owe our existence to chance. From asteroid impacts to volcanic eruptions to simply being in the right place at the right time, we are here because of luck. It is easy to fall into the circular reasoning that we are here and therefore we are the product of successful genes. We should not delude ourselves. Our genes are successful, like those of other species that exist today, only to the extent that they have made it to this point………….And when it all comes tumbling down who will survive? There is enough in our story to suggest that it will not be those of us in the comfort zone, the auto-domesticated slaves of electricity, motor cars, and cyberspace, who would not last more than a few days without supporting technology. The tradition that produced the bureaucrat, the priest, and the king, generated communities of specialists, which was fine as long as the conditions were favourable. But when things get bad these societies of experts will become strained to their limits. The children of chance, those poor people who today must scrap for morsels each day without knowing when and where the next meal will come from, will once again be the most capable at survival. The innovators will once again win when the rapid and powerful perturbation that will be economic and social collapse, generated by the conservatives themselves, will ironically mark their own downfall. And evolution will take another step in some as yet unknown direction.

    • Bicycle Dave says:

      I should have noted: when the author says “conservatives” it is not in the conventional political sense – he means those people who are content with the established order and wish to preserve that way of life. As opposed to those people (who he calls innovators) that leave the relative comfort of a familiar habitat and venture into new territory that has unforeseen risks. And, only a few of these innovators tend to survive in their early stages – until they too become successful and conservative once again.

    • Thanks! There are a lot of interesting things out there to read!

    • Justin Nigh says:

      Hi, my name is Justin. I’ve been following this fantastic blog for awhile and would like to thank Gail for the work she’s doing and the stimulating conversation that gathers around it.

      Dave, your quote brings up an interesting point. Specifically this sentence, “The reason lies in that internal tension in all of us that wrestles between self and our neighbour, between individual gain and the higher gains to be had from working in a team.”

      While I wholly appreciate the affect on growth that fossil fuels have had, I’d argue the actual catalyst to growth goes much deeper and fossil fuels have simply accellerated this process. Through my years of studying eastern philosophy, particularly Advaita Vedanta (non-dualism), which in a nutshell proposes that all separation or differentation is illusion and the sense of a self separate from the objective universe is a cultural artifact, I’ve realised this to be the deeper source of our drive to grow and causes us to damage that which is perceived not to be part of our ‘self’ (ecosystem). While this has been a useful source of competition that has created many great ideas and technologies, it fails to recognise the connectedness of all things that is required to live a sustainable existence. When we fail to recognise this connectedness and create endless separation, we end up with the situation we have today where we’ve detached ourselves from nature and are living outside the system that sustains us. I believe most of us here agree this cannot continue.

      Modern physics appears to back up the connectedness of all things, where phenomenon is influened by the observer. We live in a participatory universe where relationship isn’t just a critical element, it’s all that there is. Without relationship, without an observer, it becomes apparent that only potential exists. It’s well understood that revolutionary scientific findings take time to filter into mainstream understanding and application. We can only hope this happens sooner than later. Dave, while your quote references the tension within us caused by the current worldview of the separate self, I don’t believe it is something that is hardwired into human nature. In large part it is a story we’ve told ourselves and the story is reinforced in many ways. If we want to change our world we need to change the story. If you’re familiar with Joseph Campbell’s work you’ll know the power that story can exert on the human psyche.

      So while I’ve understood the separate self to be at the root of many, if not all, of our big problems as a species for some time, I haven’t understood the role money plays in all this. That is, not until I came across Charles Eisenstein’s work, and I have to thank Sandy Steubing for bring my attention to it in the previous post “More Reasons Why we are Reaching the Limits to Growth.” Eisenstein recognises the important role money plays in organising and focussing attention into activity and as a medium for exchanging goods and gratitude. However, we have fashioned money in a way that it reflects our misunderstanding that is the separate self. Our exchanges of money for goods and services lacks any lasting connection with the people involved. I pay for something you give me and the relationship ends there. He suggests there are alternatives that allow for greater connectedness, such as gift economies, which are beyond the scope of this post but you can find out more by looking up his work. He also goes into the issue of Usury and it’s ability to further concentrate wealth into the hands of the few who have money simply by virtue of having it while also driving infinite growth due to the fact that debt is always greater than money generated through effort and must be repaid with future activity.

      The point I hope I’m making is, regardless of fossil fuels or some other form of abundant, or even infinite, energy, the growth system will continue unless we address the fundamental error of believing the separate self is the nature of our existence while failing to recognise the connectedness and interdependance of all things.

      A few here have made the point, be the change you wish to see in the world. In light of the above, I couldn’t agree more. If we can rethink our use of money into a mechanism that reflects the truly connected universe, given the pervasiveness of money in all that we do, it will be a powerful catalyst for change. If we can understand the limitations of the story of the separate self we may be able to tell a new story that is more useful for us and the species we share the Earth with and are dependent upon for our survival. If the story is followed by action, others will see it and begin to tell the story to those around them and this is how we will repair the wound. Whether this can happen before we experience a painful die off or not only time will tell.

      • Bicycle Dave says:

        Hi Justin,

        I’m sure Gail would not object to welcoming you to her blog; and thanks for the thoughtful comment. Just as a little anecdote to your:

        When we fail to recognise this connectedness and create endless separation, we end up with the situation we have today where we’ve detached ourselves from nature and are living outside the system that sustains us.

        Before I stopped taking vacations abroad, I bicycle toured many times in Ireland and France either alone or with a small group of friends (wife included). The difference between such touring by bicycle versus motor vehicle is quite remarkable. Besides the environmental intimacy associated with traveling the back roads in all weather; there is the cultural ease of connecting with people along the way. There is something about touring on a bike that seems to give the local folks complete license to immediately engage you in conversation. A person touring by car or bus seldom experiences this.

        My bicycle touring experience has been a major factor in my dislike for cars. Cars isolate people and contribute greatly to the “endless separation” you mention. IMO, our car culture is a symbol of the incompatibility of our economic systems with realities of our earth’s biosphere.

      • Thanks for your comments!

        Each religious group has its own view of people’s relationship to each other and the world. Capitalism is in a sense a form of religion, and it reinforces the religious views of the self being all-important. Investment in education seems to act to differentiate among people.

        Ancient Jewish teachings seem to put less stress on the individual. For example, the Old Testament does not seem to talk about individual salvation–instead salvation for the people of Israel as a whole.

        I ran across Gift economies quite a while ago, and wrote a post about them. I think they will be increasingly important.

        • Justin Nigh says:

          Thank you for the anecdote Dave. I too enjoy biking for the same reasons; open connection with the natural surroundings and people. Further to your point, one only has to look to ‘road rage’ as an effect of the isolation created by car driving to understand it’s deteriorating effect on the social environment.

          Gail, I look forward to reading your post about Gift economies. I just want to add the following, for the atheist readers. While it’s true many religions contain concepts of non-dualism, the discovery is not isolated only to spiritual understanding, but also through ecology, physics, and even organic gardening. In the latter, the organic practicioner views the garden as the sum of it’s parts and must welcome diversity and connected processes to ensure success. For example, flowers must be grown alongside produce in order to attract predator insects and pollinators, and soil health must be maintained through nourishment by the plants grown in it (growing green manure crops that are turned into the soil) and in turn the plants are nourished by the soil. Connectedness of all things is not just a belief system but an observable phenomenon and the inherent nature of things.

          You are absolutely correct about Capitalism; it is just another expression of the existing predominant belief in the dualism worldview. If we can instead model our institutions and economies on the connectedness of natural systems we will have a much more resilient and sustainable system. Fortunately, I see the connected worldview being expressed more frequently. One example of this (see http://www.getstoried.com) is the conscious use of narrative or story in marketing which emphasises the involvement of the reader, not just the storyteller, as crucial to customer engagement. This type of communication will only increase in relevance as our language in it’s current use continues to lose relevance.

  10. More on phosphorus (and other resources) – including Aldous Huxley 1928. I has the pleasure of meeting Julian Huxley at McGill mid 50’s and Aldous late 50’s at a weekend symposium led by Robert C. Cook of the Population Reference Bureau. Population has roughly doubled since that time

    http://energybulletin.net/node/52550

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