Businessweek Gets it Wrong—Everything You Know About Peak Oil is ‘Not’ Wrong

On January 26, Bloomberg Businessweek printed an editorial by Charles Kenny titled, “Everything You Know About Peak Oil Is Wrong”. This editorial reflects several common misunderstandings.

According to Kenny:

Titled Limits to Growth, their report suggested the world was heading toward economic collapse as it exhausted the natural resources, such as oil and copper, required for economic production. The report forecast that the world would run out of new gold in 2001 and petroleum by 2022, at the latest.

Limits to Growth gives a table that might be interpreted to show that oil and gold new extraction will be exhausted by the dates indicated. The book is careful to explain that the situation is more complicated, though. The way the book summarizes the issue is as a price problem:

Given present resource consumption rates and the projected increase in these rates, the great majority of non-renewable resources will be extremely costly 100 years from now.

In fact, high cost is precisely the issue with oil right now, and we are still ten years away from 2022. A graph of recent crude oil production is shown below. The amount of production has not been able to rise above about 75 million barrels a day (MBD) since 2005. At the same time, price is very high.

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)

If we look at gold production and prices, it shows pretty much the same story: stalled out production and very high prices.

Figure 2. Gold production has been flat to slightly declining as gold prices soared. Gold production from USGS; Gold Price is from World Bank Commodity Markets Pink Sheet.

The problem is a two-fold problem: it is a price problem, and a problem of not being to increase extraction as much as one would like. The issue is one of declining quality of resources, as lower grade ores are found, and more difficult to extract oil is found. There are plenty of resources available; the issue is that we cannot afford the high cost of extracting them.

Kenny says, “Far from being depleted, worldwide reserves of minerals continue to climb.” He then goes on to list a whole host of resources: natural gas liquids of 1.2 trillion barrels, shale oil of 4.8 trillion barrels, and tar sands of 6 trillion barrels.

These are lower and lower quality resources. In order to make sense for these resources to be extracted, it is important that the cost of extraction not be too high. Many of the large oil importing nations went into recession in 2008-2009 when oil prices climbed to $147 barrel, and quite a few economies are struggling now, with prices in the $100 to $110 barrel range. Unless we can get the oil out at a reasonable price, there is no point in even counting them in the base.

There is also an issue of how quickly resources can be extracted. Canada has been attempting to develop the oil sands since 1967, but even after more than 40 years of attempted development, only 2% of the world’s oil supply is from this source.

Kenny also doesn’t seem to understand that Daniel Yergin is far from an unbiased observer. He says,

And yet according to renowned oil analyst Daniel Yergen [sic], technology advances and new discoveries have allowed oil reserves worldwide to keep growing.

Daniel Yergin is chairman of IHS Cambridge Energy Research Associates and Executive Vice President of IHS. The companies he works for do consulting work for oil companies. These oil companies would like you to think that their prospects for the future are as good as possible. In many ways, Daniel Yergin’s role is not too different from that of Jack Gerard, CEO of the American Petroleum Institute. If a person checks back, one finds that many of Yergin’s rosy predictions have proven false.

Kenny has another overstatement:

New technologies suggest the dawn of U.S. energy independence.

This is flowery language, but doesn’t represent the real situation. A big part of the reason our imports are down in recent years is because US oil consumption is down. People who are laid off from work drive less, and with high oil prices, fewer people take driving vacations or go by airplane. The EIA shows this graph of net imports.

Figure 3. Net imports as percentage of petroleum products supplied--Graph created by EIA. http://www.eia.gov/totalenergy/data/monthly/pdf/sec3_6.pdf

We are still importing 45.2% of “products supplied”. This comparison is on a volume basis, not on an energy basis. If the comparison were on an energy basis, we would be importing over 50% of petroleum products. Biofuels and natural gas liquids, which are lower energy than oil, are treated if they were substituting for oil on a barrel for barrel basis, but they really are not.

We hear a lot about having very low natural gas prices right now, because of higher production of natural gas combined with a warm winter. Unfortunately, having more natural gas doesn’t fix our oil problem. Our oil problem is the fact that price is too high because of inadequate world supply and also because much of the cheap-to-extract oil is already gone. We have had to move on to more expensive-to-extract oil supplies.

Over time, natural gas may make a small dent in our oil problem, if a few vehicles can be converted to natural gas. But the large size of natural gas tanks and lack of refueling stations make them unsuitable for many uses. The amount of natural gas available for substitution also isn’t all that high, relative to the world oil deficit.

Kenny also said:

Limits to Growth suggested the world would be on the verge of complete economic collapse around about now, with industrial output falling to its level of 1900 by the end of this century, as resources vital to sustaining a modern economy dried up. However dire today’s global financial crisis, we are nowhere near such a doomsday scenario.

I would disagree with Kenny on this. He doesn’t seem to see the close connection between high oil prices and the economic problems we are seeing today. With high oil prices, people cut back on discretionary goods, resulting in layoffs among people who work in those industries. For example, fewer people have jobs in vacation industries (for example, in Greece and Spain) if oil prices are high. This leads to recession and debt defaults. If one country defaults, ripple effects can spread to banks around the world.

Our economy has a high level of debt. We need economic growth in order to repay that debt with interest. If oil supply remains flat, or worse yet, falls, it will be difficult to produce the level of economic growth needed to prevent debt defaults.

Hopefully, Kenny will be right about the issue of economic collapse, but it seems to me that the possibility should be a serious concern. Peak oil and the related issue of Limits to Growth are real issues, even if Charles Kenny doesn’t understand them.

This post was written for ASPO-USA’s February 6, 2012, Peak Oil Review. 

139 thoughts on “Businessweek Gets it Wrong—Everything You Know About Peak Oil is ‘Not’ Wrong

  1. It never surprises me that the mainstream media never gets PO correct. It never gets sustainability correct either and only seems to highlight the actions of far left radicals so as to de-legitimize the reality of finite resources.

    It is hard not feeling alienated in these dying days of our empire and global consumption pigout. Is the Superbowl not the ultimate experience in everything disgusting about our culture of overuse, over extravagance, arrogance and insanity? Don’t worry, everything will be okay, says the media!

        • Hi Cookie,

          I would think that the guy who suggested that, would make a fine US transportation czar! However, I would agree that we should show some restraint in punishing those who violate the 35mph limit (so as not to be considered too radical).

          As with all laws in Singapore, those involving traffic rules, vehicle registration, and liability in case of accident are strictly enforced, and failure to follow them may result in criminal penalties…… Singapore has a mandatory caning sentence for vandalism offenses…… and other offenses.

          On a more serious note: there is an odd aspect to the kind of discussions we carry on here. The comments of most folks imply (or state outright) that the impending FF shortages will have apocalyptic dimensions – and, most also see no way of avoiding collapse. Never the less, if some mitigation strategies were possible, then stretching out our oil supply would seem to be at the top of the list to buy time for things like lower birth rates, etc. A 35 mph speed limit would seem like a minor imposition to ward off the four horsemen. And yet, our car culture is so ingrained that even here (or TOD) this sounds like a far too radical proposal. I understand most US citizens would rather die than have their “car liberty” attacked by evil government – but is 35 mph really so radical in comparison to what might happen in a few decades? BTW, I think the phrase “give me liberty or give me death” was actually first spoken by Colonel John Verner
          Stribling (or maybe not).

          • Nice to see you back Dave,

            If one buys into a future as dire as “Our Finite World” makes it out to be. We are going to 35mph by choice or nature. By choice would mean 55mph today and a target of no new oil based fueled transportation vehicles by 2030.

            Then again, one could put their head in the sand and “Drill Baby Drill”.

  2. Hi Gail:
    Excellent post. It’s good to see some critical thinking rebut the business press cornucopians who continue to deny the reality of finite resources and the end of growth.

    • The New American Foundation lists Daniel Yergin as a board member and personal funding contributor ($10K to $25K group).

      • Interesting! I suppose that if you want your ideas spread further, you get yourself heavily involved with a foundation (donate money, get on board), and get the employees of the foundation to spread your view of the truth. I suppose the New American Foundation is supposed to be an educational not-for-profit institution.

        • Make no mistake, the battlefield is the hearts and minds of the people. We need our story to be more attractive than theirs. Perhaps we need to reduce our appeals to the mind and focus on the heart instead. The previous discussions of rational vs emotional would suggest this is where the low-hanging fruit is to be found.

  3. Nice on the whole, but it’s Kenny, not Kenney, and adding something showing change in US consumption (-2.5 mbpd) vs increase in extraction (+.5) might be better than just saying a big part.

    • Writing for ASPO-USA, I was limited in how long I could make the post, and I was at the limit (or over) already. But that is a good point. I fix the Kenny issue. He couldn’t spell Yergin either.

  4. Actually, I take anything about Peak Oil in mainstream publications as A Good Thing.

    Gandhi said, “First they ignore you, then they laugh at you, then they fight you, then you win.”

    It looks like we’re in the second or third stage, having endured willing ignorance for at least a decade.

    It also reminds me of Thomas Pynchon: “If they can get you asking the wrong questions, they don’t have to worry about the answers.”

    This may, therefore, be a tactical error on the part of the status quo. Such editorials cannot help but provoke “the right questions” from more people — and allow people such as Gail the opportunity for intelligent rebuttal.

    • Hi Shawn,

      Those oil barrels in the lead photo remind me of a couple of Sci-Fi movies…hmmm

      Notice (near the end of the article) that Mr.Yergin has decreed that we will have 130 mbd by 2030. So, happy motoring and all you can eat – not to worry.

      Also, Gail you should note from the article that we can get plenty of oil right here in the good old USA for $50 to $60 a barrel – so, no worries about the economy either.

      In all fairness, they did note in the last sentence of the article that we might need to “reconcile fossil fuel combustion with the risks of climate change” – really!

      Please note high sarcasm content on my part.

  5. It doesn’t matter if Peak Oil is well understood in the MSM.

    It doesn’t matter if Peak Oil is understood by the general populace.

    That which is inevitable is immune to treatment. People knowing about it won’t change the 6 billion die off. In that context, the many blogs appearing are somewhat counterproductive — from the perspective of wanting to see only the prepared survive.

    Meaning, many more prepare. There is a rich food supply for nomad armies that will wipe each enclave out and thereby last, themselves, much longer.

    Winter is the friend of the prepared. It kills the primary threat.

    • I share a similar philosophy to you on this issue. How does one prepare against the inevitable hoards though? How does one not become their target and/or defend against them if they show up someday?

      • I’ll babble here about how to prepare.

        Item 1: Way too many survivalist sites are run by overweight 50 year old “former green berets”, which means they spent 3-4 years as an enlisted man, trained by jumping out of some perfectly good airplanes, got some excellent firearms training and excellent infantry training and even got some living off the land training that someone, somewhere, who had never lived off the land for 5 years, thought was legit — and all of this 30 years ago when he was 20.

        Item 2:The decline and subsequent tries to survive will NOT be uniformly distributed. This is not going to be a gentle, evenly spread out bit of mild sacrifice. There are not going to be any volunteers to endure a larger lifestyle drop than those presently at a lower lifestyle. No one is going to tolerate 10% GDP drops when someone else is enduring only 2% drops.

        Item 3: The Chinese can park SLBM capable submarines in Venezuelan waters and be within nuclear tipped ballistic missile range of the entire Galveston to Mobile gulf coast oil refinery complex. About 8 hits would be all that is needed to eliminate perhaps 70% of US oil import/refining capability. You need 1, repeat, 1 sub for that. The Chinese have more than 1. China would soon lose all of its east coast to retaliation after that, but it’s a numbers game at that point. If they are enduring 10% declines while the US tries to orchestrate only 2% declines, they are looking at perpetual inferiority. That’s not tolerable to anyone. They will act. If they can wipe out 80% of US population via starvation and endure the same % losses, a 20% Chinese survival will vastly outnumber America and likely can force shipping of food via sail from the US to those remaining Chinese. IOW, our remnants starve worse and they win if we wait too long.

        Item 3: The way you deal with hordes is you keep your mouth shut and you plan your preparation to be the opposite of what most will do. You do not flee winter. You seek it. Winter is your friend. You are going to defeat the hordes with winter. They aren’t going to know you’re there. You use winter to kill other humans, who are your primary threat. You do not burn fires during the day so smoke can lead the enemy to you. You burn fires only in snowstorms or on moonless nights. You keep quiet. You show no lights after dark. You go to snowy mountains. You hope your mountain stream based micro hydro system that is your heat source power doesn’t freeze. You rely on archery and atlatls for hunting because guns make noise. You do not rely on solar that can be covered with snow. You do none of this within 50 miles of a town larger than 20,000 people. If they don’t know you’re there, they won’t walk 50 miles.

        • That was insightful and interesting. Thank you. One would hope it does not become this nasty but given that I think most Americans have become fairly similar to zombies in their thought process and actions and only those who refuse to get in line are considered “weird”, I think there is a strong likelihood that the zombies do indeed become a larger threat than anything else to a person’s individual survival. You gave me a few things to think about here for my own preparation.

    • I will have to agree that the range of solutions is less than a person would like. But we can still live a good life in the present, and hope that the downslope won’t be too fast. We can also look for what might appear to be at least temporary solutions in our own situations. Perhaps we can even find somewhat permanent solutions, for at least some part of the population.

      • Good point, the penultimate sentence. It fits with traditional wisdom. I think of the old, traditional prayer, “Give us peace in our time, O Lord.” Plus, “Give us this day our daily bread.” Or turn our attention away from the grandiose and, as Candide reminded Dr Pangloss, tend our garden(s).

        Meanwhile, prepare, prepare, prepare! For my part, I need to clean my bicycle chain, replace a string on my guitar so I can serenade my wife (she’s Hispanic and falls for a serenade time and again), make up for a misspent youth by learning statistics (all I did, in those youthful days in Ann Arbor, was learn enough to get a decent grade and then forget it; Laplace [i.e. Heaviside] Transforms were so much more fun), and teach my granddaughters while I can: they still think I am delightfully cool and awesomely wise (it can’t last).

    • This is why I live in Alaska. We got better Winters up here than anybody else, short of maybe the Siberians.

      However, while a few real good Back Woods types stand a better than average chance at survival by going WTF out into the Yukon Territory and going Full Primitive, overall I think you’ll see a shrinkage down to Tribal Size groups in the neighborhood of 100-10000 Human Souls. This is the most effective Political Unit Size for population survival overall and worked the longest from about 70,000 BC when Toba went Ballistic right up to around 10,000 BC or so.

      Here in the Matanuska-Susitna River Valley, we currently have a Population of around 60K, spread across a territory bigger than most US States. In my town, there are perhaps 6000. Anchorage has around 350K, but I suspect as the services decline that most will evacuate. Depopulation occurs in many ways besides rapid death, you already see depopulation occuring in many areas of the Maine and Vermont in the smaller towns there.

      When I first started tracking the Collapse in 2007 after the failure of Bear Stearns, very few people up here saw the writing on the wall. Now it is many more. The society I do not believe will collapse overnight, at least not in this location. Diet will have to change, but we definitely can produce enough from the Fisherie and the local Farms to produce enough food for the current population as long as we have some Oil, and there is plenty still available up here. Not enough to keep the Pipeline running more than another 4 years or so without drilling ANWR, but plenty to move through the refinery in Fairbanks and then through the rest of the Anchorage-Fairbanks rail system. Also plenty of Coal in Healy.

      Far as how the conflict with the Chinese will play out, one expects both sides will engage in taking out each other’s military assets first. Its going to be difficult if not impossible to do any kind of Invasion, since Troop Transport ships are just Sitting Ducks for missiles. So both sides will essentially be limited to their own land masses. The Chinese have far greater Water Resource issues and far more vulnerability to disease vectors when their sewage systems start failing in earnest in their Big Shities. The Chinese Population will collapse rapidly and take a disproportionate hit on population by percentage.

      It behooves nobody to engage in an exchange of thermonuclear ICBMs, the populations will collapse without them. Tactical Nukes my be used on the battlefields in some locations, but even that does not make a whole lot of sense. Of greater threat on the Nuke level are all the spent fuel ponds surrounding all the currently operating reactors. Eventually these will collapse and you’ll have lots of Fuk-U-shimas. You definitely do not want to be downwind of these places.

      RE

      • Congrats on Alaska. Almost no one can survive in place, but maybe you’re the exception. The most substantial part of “prepare” has to be the walking trip to where you will go. You’ll have to shoot your way out of a mob in a city and start walking. This isn’t as bad as it seems in that if you simply have a plan, you’ll be ahead of 99% of your competition. They will have no plan.

        Find salt. You can’t survive without it.

        • One should not be IN a Big Shity to begin with once the slide to the kind of Mad Max world you’re postulating begins in your neighborhood. If you haven’t evacuated before then, you seriously reduce the likelihood you can get out at all.

          Mad Max BTW isn’t an inevitable outcome. A seriously repressive Police State may preceed that outcome.

          Far as salt goes, long as there is seawater around to evaporate, you can do OK.

          RE

    • I don’t know if it is possible or meaningful to “prepare” at an individual level. I suspect we would really have to prepare at a regional or national level to make any sort of difference. Consider the effects on healthcare, information and sanitation, for example, or other services that we rely on. Will these processes remain intact or functional in any way? If not, how can we prepare?

      • I know historically, family clans have sometimes migrated together when conditions were bad in one area. That way they could help each other out, when conditions got bad. So I think survival might be possible at the clan level, if the basics are covered.

        The status of healthcare is very much tied to the ability of cities to provide the population with fresh water and with sewage treatment. I expect that if we lose our ability to provide the population with fresh water and sewage treatment, death rates will skyrocket, especially in cities. We really need to figure out how to deal with these issues early on–prepare for gathering our own water and suitably treating it; also composting waste of all types. These would seem to be at least as important issues as arranging for a future food supply.

      • George
        I know I will sound like a broken record. But…
        For healthcare, live an optimum lifestyle. No chronic disease, few infections.
        For information, learn to read the clouds to tell you what weather is coming. What else is so important?
        For sanitation, you should already be recycling all your urine. And get a composting toilet.

        Get a copy of a good Permaculture book (lots of libraries have copies of Bill Mollison’s Introduction to Permaculture) and absorb his positive vibes. All you need is for the various governments to stop persecuting you.

        I will admit that some people are poorly situated. Before you despair, look at what Orientals are able to do in crowded cities. If there is no hope where you are, go somewhere else.

        Don Stewart

        • Don,

          I’m interested in getting your opinion on my situation and what I might do to best position myself for what’s coming.

          I live in Australia and moved out of Sydney a year ago to a regional centre about an hour out of Brisbane. There is a lot of undeveloped and farm land in the area. Housing in Australia is extremely unaffordable; amongst the least affordable in the developed world. I refuse to buy property for this reason and am very averse to debt for reasons that should be obvious to most here. Although we have what would be considered significant fiat holdings, it may only cover 25% or 50% (dependent on what standard of living we’re willing to accept, myself being more open to lower standards than my partner) of the cost of land and residence. This is why we rent our house. We do have a small organic garden that provides some food, but really is insufficient as a replacement for food we bring in.

          The problems with our position are fairly obvious. If the proverbial hits the fan, the landlord is likely to move us along and occupy our residence (they are also renting and this property is an ‘investment,’ something that’s very popular in Australia and personally I believe is damaging on a number of levels). If we buy land we will be slaves to the debt system and may lose the land if we can’t service the debt.

          Like many, we feel trapped by the system and it’s almost impossible to operate outside it’s boundaries.

          • I think it is likely that post-peak living conditions will tend toward the feudal. One of the few things with intrinsic value is agricultural land.

            Once this becomes obvious, people will migrate to the countryside in order to survive. If one is not able to own land outright (and also to protect it with weapons and social support, which are other intrinsic goods), one must work on someone else’s land as a share-cropper or hired hand. Land owners will also need lots of help once they cannot rely on machines to do farm work.

            I suggest either trying to buy a share of an intentional agricultural community or find a place as a farm worker on a farm with older owners who need younger laborers.

            For example – My wife and I are fit, healthy and own good farm land, but we are in our sixties. Our next big project is to build another residence (or two) so that our adult children and other extended family can move to our land and help out. Failing that, we know that there will always be plenty of young people willing to work hard with us if given a place to live.

            • That is an issue I wonder about too. If things get bad, truly desirable assets may be taken over by the government. This can be done through high taxes.

              It seems like flexibility is important. We can’t plan on storing up for the future, and having it in the end.

            • I have recently been studying feudalism in Poland during the Enlightenment. Those were interesting times, too. I didn’t know, for instance, that Poland as a country ceased to exist for some 123 years because of their responses and reactions to the instability and subsequent revolutionary ideas of the period. Over a century later, it was re-created at the end of World War One. I had no idea. Although it was a big thing at the time, subsequent events in History now tend to overshadow this period in Polish History. If you’re interested in a uniquely Polish Solution, see ‘organic work’ under wikipedia:Poland

            • One of the most common assumptions people make is that Land Titles and Property Ownership Rights will be maintained after a monetary collapse, but its not likely they will be. Why should they be since such titles are were issued by a corrupt state using a corrupt monetary system? The Bolsheviks simply confiscated everybody’s land and communalized the ownership. I’d expect a more Fascist solution here, with Monsanto and Conagra being handed the property rights to all land suitable for Agriculture. We are pretty close to there already.

              RE

            • I, too, have wondered about how property ownership will hold up. If there is a need to move to less mechanized agriculture, then there will be a need to somehow change ownership of land to match the new situation (either individual plots, or communal ownership). If the government doesn’t have money to buy the land from current owners (and I can’t imagine that it will), it seems likely that it will take it from whoever owns it.

          • For what it is worth, I don’t think that banks can repossess everyone’s home. So even if there are debt defaults, it may be those who think they are going to be repaid that bear a lot of the pain.

            On the other hand, owning a house ties you down when you may want to move. This is especially the case if property values drop.

            So there is an argument either way.

            We have a home that we own without debt–less expensive than what other people would say we could afford. That approach can work, in some circumstances.

            • I wanted to reply to Reverse Engineer’s comment about home ownership, but there was no reply option shown. Please make sure that all comments show “Reply” below.

              As to the issue of land ownership- If ownership of all resources, including land, is to be decided by raw power, ultimate “ownership” depends on how much power is brought to bear on my land and family.

              For individuals and small groups of “brigands”, we will rely on our community and our weapons. For much larger forces, such as state forces during martial law, nothing can be done.

              However, if one owns a relatively small parcel that is debt free and not in a particularly strategic location, far from population centers, and not particularly suitable for commercial agriculture, it should be less tempting to powerful forces. This is my situation here in Hawaii.

            • I am not sure why the “reply” box didn’t appear, but it is possible that the number of comments in a thread had maxed out. I raised the limit from 6 to 10, so hopefully that will fix the problem in the future.

              I agree with you, that small parcels that are debt free, and not in very good locations to be consolidated into a big tract, are much safer in the long run.

            • Tidbit of significance.

              With a John Deere quality plow blade (that revolutionized agriculture in the 1800s), an optimal team of oxen can plow 1 acre of land in 8 hours. A 400 horsepower John Deere tractor can do it in 2.3 minutes.

              Point being, large tracts of land are something that only works with 400 horsepower tractors. Tractors are required to do 10,000 acre farms for 7 Billion people before growing season expires.

              The oxen can do 20 acres in, say, 18 days, assuming it doesn’t rain and that you have 6 oxen (to rotate into the yoke and rest them every few days). It’s also useful to remember that oxen have to be raised and trained from a young age. Maybe 2-3 years to be functional, and they must be shod. The constant strain on the hooves will tear them apart without steel shoes around them.

              This is 1850s technology, we’re talking about. US population 1850 = 23 million. That’s a 93% dieoff.

            • We don’t think of these details. When I was at an Emergy conference in Florida, an attendee from Sweden told me about attempts had had at trying to raise oxen and use them for plowing. He started with standard sized oxen, and found that their caloric requirement was too high, relative to the food produced in that part of the world. He now is using smaller cattle. He said his research had shown that 100 years ago, cattle (used as oxen?) were half the size they are today.

  6. A tweet from charlesjkenny

    charlesjkenny Charles Kenny
    Opposing view on my column –Everything You Know About Peak Oil is ‘Not’ Wrong wp.me/p3dRG-3PW via @gailtheactuary

  7. The propaganda outlets are about keeping the debt slaves in harness to serve the owners.

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