Three Major Journals Publish Articles on Limited World Oil Supply

In the past month, three major peer-reviewed journals have published articles relating to limited world oil supply:

  1. In Science, Technology is Turning U. S. Oil Around But Not the World’s, by Richard A. Kerr;
  2. In Nature, Climate Policy: Oil’s Tipping Point has Passed, by James Murray and David King; and
  3. In Energy, Oil Supply Limits and the Continuing Financial Crisis, by Gail Tverberg.

The fact that these articles have been published is significant, because articles in the  mainstream press, such as Bloomberg’s recent article, Peak Oil Scare Fades as Shale Deepwater Wells Gush Crude, seem to suggest that our oil problems are past. While the US oil supply situation may be a little better, the world supply situation is still very bad, and oil prices are still very high around the world.

Furthermore, high oil prices tend to have a recessionary effect, and can lead to debt defaults. These issues are described in both the second and third articles above. Thus, there is a substantial chance that high oil prices are contributing to the debt default problem in Europe, and to forecast low world economic growth.

In this post, I briefly describe these articles.

In ScienceTechnology is Turning U. S. Oil Around But Not the World’s, by Richard A. Kerr

This article points out that even the optimistic estimates, such as BP’s recent Energy Outlook to 2030, see little growth in non-OPEC conventional oil production between now and 2030 (Figure 1).

Figure 1. BP oil forecast to 2030, from BP Energy Outlook to 2030

We are thus dependent on growth in OPEC crude oil and in OPEC natural gas liquids, neither of which is assured, given political uncertainties in the Middle East. While technology advances are making possible some new US oil production, this growth is needed to offset declines in existing fields around the world. There is a great temptation by those using new technology to make forecasts using an “overabundance of optimism.” History shows that US oil production has mostly fallen since 1970 (Figure 2).

Figure 2. History of US production of crude oil, in figure created by EIA (similar to, but not the same as, figure shown Science article).

In NatureClimate Policy: Oil’s Tipping Point has Passed, by James Murray and David King

According to the authors:

There is less fossil-fuel production available to us than many people believe. From 2005 onwards, conventional crude-oil production has not risen to match increasing demand. We argue that the oil market has tipped into a new state, similar to a phase transition in physics: production is now ‘inelastic’, unable to respond to rising demand, and this is leading to wild price swings. Other fossil-fuel resources don’t seem capable of making up the difference.

Such major spikes in fuel price can cause economic crises, and contributed to the one the world is recovering from now. The future economy is unlikely to be able to bear what oil prices have in store. Only by moving away from fossil fuels can we both ensure a more robust economic outlook and address the challenges of climate change. This will be a decades-long transformation that needs to start immediately.

The article talks about how high oil prices erode family budgets, and points out that it seems likely that it wasn’t just the ‘credit crunch’ that triggered the 2008 recession. The oil price crunch was also involved.

A call-out from the article summarizes a current problem:

The price of oil is likely to have been a contributor to the euro crisis in southern Europe.

In EnergyOil Supply Limits and the Continuing Financial Crisis, by Gail Tverberg

This is an article I wrote in early 2011, that wasn’t officially published until January 2012. The article can temporarily be downloaded free, as the fifth item down on this list of articles from the January issue.

In this article, I explain why one would expect high oil prices to cause economic disruptions of many types. If consumers are spending more on high-priced oil (and high-priced food, because both costs tend to rise together), they will cut back on discretionary  expenditures, such as going out to restaurants and taking vacations and buying new cars. Workers in affected industries will be laid off.

There will also be indirect impacts. People who have been laid off from work will tend to default on their loans, as will people who are living paycheck to paycheck and find that the cost of commuting has rising, and the cost of food has also risen. Holders of sub-prime mortgages will be disproportionately represented in the group of those with defaults, since they were among the least qualified loan applicants.

High oil prices can also be expect to affect housing prices. In part, this occurs because people who spend more on necessities (commuting and food) are less likely to want to buy a move-up home. As a result, there will be a cut-back in demand for homes, and thus in resale prices. Also, at the time that oil prices rose in the 2004-2006 period, the Federal Reserve raised interest rates in an attempt to try to bring oil prices back down. These higher interest rates also tended to reduce demand for move-up homes. I also show that the timing in the drop in US home values matches with what a person would expect, if it were high oil prices, and actions taken by the Federal Reserve in response to high oil prices, that were really behind the drop in home prices.

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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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77 Responses to Three Major Journals Publish Articles on Limited World Oil Supply

  1. Lucinda Lunkins says:

    Your comment is offensive to me.

    • In some ways, what actuaries do is not all that different. Insurance companies always want to know if a hurricane hits, where the damage will be. Or they want to know what the expected impact will be on their policies of some event–a communicable disease that is passed around, or hail storms because of global warming.

      I agree that collapse isn’t a very nice subject, but sometimes if you are trying to figure out how to mitigate a problem, it is helpful to have an idea of which areas are likely to be hardest hit. Your modeling may also help suggest which strategies for mitigation might be helpful.

  2. Ikonoclast says:

    You need to explain why my comment is offensive to you. If a car crash simulation expert explained (in clinical language) how they modelled and tested passenger injury in crashes it might sound like a similarly cold and macarbe intellectual exercise. Yet I am sure you accept that crash simulation work has a purpose and good applications in improving car safety.

    In the some way, cold intellectual appraisals, like the one I suggest, which treat humans and human phenomena as just another set of natural events, are the first steps in objectively working out the parameters of our global dilemma. You cannot assume, ahead of time, that this coldly intellectual stage of speculation, modelling and appraisal cannot produce any practically useful information which might enable us to ameliorate the suffering in some quarters and reduce the overall magnitude of the disaster. However, we can be certain that blind emotional denial will have zero results.

    Frankly, your claim to be offended is an example of anti-intellectual, anti-empirical, anti-scientific emotionalism; the exact kind of denial response which leaves us open to even bigger disasters and even more human suffering.

    • Bicycle Dave says:

      Hi Ikonoclast,

      I didn’t get the “offensive” thing either – I found your comment to be good “food for thought”. Thanks for taking the time to write it.

  3. OK, this is probably a good thread to drop on an article I wrote back in January examining Energy-Money Equilibria issues. Its a very long article which comes in 3 parts. I’ll publish Part I here now and see if it posts up right after this post. If it doesn’t, until Gail gets to it Bicycle Dave and others who are members of Reverse Engineering can find the articles at:

    Part III examines one scenario I think likely of Extreme Fascism which most people will find pretty unpleasant. Not sure I’ll publish Part III here.


  4. Energy-Money Equilibrium: The Value of Money in the Age of Oil Part I

    Trying to figure out exactly how any Money achieves and holds its value is very
    difficult. In all but the most simple systems which are little more than
    Barter, you quickly develop a level of complexity that is confounding, mainly
    because it is always so self-referential. In this exercise, I’m going to try to
    elucidate the process used over the centuries to not just Create Money, which is
    primary, but also to Control Money once created. I have some basic ideas here,
    but I have no idea how this post will come out in the end. It’s a very
    difficult problem.

    Starting Point: You can’t have Money without Surplus in Basic Needs, but
    neither is Surplus by itself sufficient. You also have to have control over at
    least One basic conduit of Wealth, which is in the Begining Food. Why is this

    First look at a pre-Agricultural Hunter-Gatherer Society. Said society can be
    in Surplus, but they don’t need or use money, because each member of the society
    can take from the surplus as much as he or she needs. You may Barter things,
    but you do not need an intermediary of money to do that. Its a very simple
    system, but allows for virtually no Savings, and none are necessary as long as
    you always have and expect surplus. A small group of H-Gs in a large territory
    not competing with others are always in surplus. So no Money develops in such a

    The Ag society though as soon as it develops REQUIRES money. First thing is,
    the Ag Society develops a Surplus even beyond that of the H-G society, so much
    so that the population begins to expand rapidly. The Ag system also works on a
    seasonal level where large amounts of Grain are collected up at harvest time and
    must be stored in Warehouses. Such intitial efforts are Communal, with a Tribe
    all working together on a Patch of land to farm it. To do so though, they must
    Claim Ownership over that land. This requires then the next level, a Military
    to protect and defend that land.

    Its at this point you have the 3 most necessary elements involved for the
    beginning of a Monetary system. One is Ownership of the Land, at first Communal
    by the Tribe as a whole. Second is Storage of large quantities of Food in a
    Warehouse. 3rd is developing a Military group responsible for protecting both
    your land you grow on and the goods stored in the warehouse.

    The Military component quckly becomes the most Dominant one, in the early stages
    led by the most powerful Warrior who all in the tribe respect and fear. This
    person become “King”. Call him Nimrod. The King then becomes the Symbol of the
    State, and all it “owns” and “produces” (really “controls” and “extracts”)
    belongs to him. The monetary system develops as a means for the King to
    distribute out surplus to his Loyal Subjects.

    The money develops when the Counting begins in the Warehouse of Grain. Whatever
    is in there is represented in the Count by Credits, which can then be symbolized
    in a token. Only as many Tokens are produced as there is grain to cover them in
    redemption. Precious metal coinage works well for this in the beginning. All
    the precious metals the King has acquired by whatever means care coined up, and
    appropriately valued so that there are not more coins than Grian that can be
    redeemed. This is Hard Money in extremis. It has an absolute value measured in
    the Food it represents.

    The King can now hand out the Tokens to his Military protectors and also pay the
    oversears of slaves or serfs who work the land and grow the food. These folks
    are not paid in coinage, they merely get a small portion of the food they
    produce for subsistence living.

    Problems arise as the society grows. In the beginning, the surplus of food being
    produced exceeds the amount of precious metals available for coinage, so the
    food drops in price. A few things can happen here, one is that the King can
    stop paying out so much coinage to his Military and Overseer classes, raising
    the price of the food up again, allowing the King to keep more Precious metal in
    the treasury and more food in the warehouse. Everybody is still beign fed here,
    King has more in the Treasury, and besides that surplus in the grain warehouse
    grows. It keeps a pretty long while, but eventually will rot or simply become
    ridiculous to save any more of. Like putting up more than a few years of Preps,
    it gets ridiculous.

    So you start to Trade the surplus with others who don’t produce so much food and
    expansion begins of the system. Peripheral areas pay in more Gold and Silver
    and also begin to produce other things besides food which the Money becomes
    useful for paying for.

    At this point the system has become vastly more complex. The Tokens no longer
    represent an absolute amount of Grain in a warehouse, but rather the value of
    all Goods and Services being produced in this ever growing system. Bourses or
    Trading Markets develop which set relative values for everything being done in
    the society, which as it increases in size and velocity needs a rapidly
    increasing Money supply to handle. The Precious metal coinage does not increase
    at the same rate in most circumstances, so in order to have more “money”
    available, base metals are used to produce some coins, which pretty much can be
    produced at will. Money is getting softer during this period, but so long as Da
    Goobermint doesn’t go wild coining up the base metals, it doesn’t devalue while
    the system is expanding.

    The trading system begins to undergo many stressors at this point. Regardless
    of whether there is some whether or plague related Famine or not, at times some
    folks in control of large swaths of land simply take them out of production,
    locally raising the cost of grain. This allows them to extract out more
    precious metals from the buyers, and this money goes into their Basement Safes.
    I’m sure you can see the analogue here with how Oil prices get manipulated by
    creating periodic “shortages”, even if there is plenty of Oil in the ground.

    The “successful’ society utilizing Money has now reached the point where there
    is just a ton of Surplus in the society, so much so that there isn’t a whole lot
    of need for Workers or paying people much coinage and most of the PMs are
    sequestered away inthe Basement Safes of a few Pigmen. At this point though,
    some folks cannot even get hold of the few base metal coins to buy any food,
    though there is plenty in the warehouse. The society needs no more Serfs, nor
    does it even need more Artisans and Toolmakers. Only a few of the most
    successful of these are necessary for the King and his Oligarchy, so these New
    Professions start to see Unemployment also, along with Serfs. The economy slows
    to a crawl, basically because it produced too much surplus too quickly, and then
    developed an overburden of a population with no remunerative work available.

    Social Discontent rises here amongst the Poor, at which point it becomes
    necessary to “Give Away” the surplus to these folks or face a Revolution.
    Except soon as you do start “giving it away”, the Money loses further meaning.
    Why work as a Soldier and put your life onthe line for a few coins when Bread
    and Circuses are beign provided to the masses to keep them quiet and
    entertained? The Roman period of Bread & Circuses has the direct analogue of
    the Great Society program through to just recently.

    Eventually, regardless of actual production or extraction ability of food outta
    da ground or Oil under da ground, production of both begins to fall because
    there is no money flowing around the market which will buy it. Now you really
    DO get your Revolts, which really do require you to start increasing the size of
    the Army and handing out money from the Treasury, until the Treasury is bankrupt
    of PMs. Now, there are Gold coins inthe hands of the Soldiers, but there is
    little being produced to buy with those Gold coins. At this point, you reach
    the end of the line for this iteration of a cycle, and not until the Wars and
    internal conflicts get resolved can you begin a rebuilding process to do the
    same thing over again.

    The whole process here has occurred countless number of times since Nimrod, and
    for so long as there always was a real Surplus in the environment, the only
    thing that caused the famine and scarcity problem was the collapse of the
    monetary system.

    This iteration is different than those were. The repeated expansions and
    collapses culminated with the discovery and exploitation of fossil fuel
    resource, which put the entire globe into such great Surplus that it rapidly
    expanded in population numbers consuming this last great resource base. Upon
    its collapse, what is left out there isn’t enough to expand on again after just
    the typical wars knocking down Biblical numbers of around 25% of the population.

    The monetary system doesn’t really collapse from Scarcity normally, it collapses
    from too much Surplus and hoarding of currency. Periodically though due to
    overextension and resource depletion in specific locations along with the
    vicissitudes of Nature, real scarcity does rear its head, which causes a
    collapse from the opposite direction. In this case, money may be circulating in
    the economic system, but it is a shortage of goods rather than a shortage of
    money which produces the disruption. The end result isn’t much different since
    you still end up with a situation where extant money won’t buy goods, but the
    causative factors are different.

    The Period we are working into now is a synergy of both problems, on the Global
    Scale. On the one hand, there is a consolidation of Money going on removing
    much of it from real circulation through the Banking System; while at the SAME
    time resources are depleting on a global level. As long as these two parameters
    move in tandem, you get a shrinkage, but not a collapse. You only get a
    collapse when on the gross level BOTH fail, and that has yet to occur. When it
    does occur though, its a lot worse than one or the other of the other types of

    In this last iteration of the cycle, rather than Food in Warehouses serving as
    the underlying basis of Money, the Thermodynamic Energy of Fossil Fuels
    underpinned the money. This by extension through the Industrial Food Apparatus
    includes Food, but food is only part of the total production of the society.
    Over time, food becomes arbitraged out of value, since all it does is support
    “Useless Eaters”. Rather than produce more food, the monetary system serves to
    encourage the production of more Fuel, to perpetuate itself. Thus you get your
    Ethanol production for Carz reather than Corn for Peoples.

    This is a Dynamic Shrinkage Model, basically serving to reduce population while
    at the same time conserving resource, which very well might be a planned
    methodology and could work assuming the circulating money and available energy
    resource decline in near parallel terms. The problem it suffers is one of
    instability all along the way. Because the monetary system serves as a proxy
    for value for many OTHER things besides just fossil fuel energy, malinvestment
    through the system can collapse the monetary system too fast to maintain a
    stable equilibrium with the collapsing energy supplies. Obvious example for
    this problem is the collapsing McMansion Market, but it extends into Carz,
    Factories and many other “Assets”. Unless those assets can be halted from
    complete collapse in value, the money supply can’t be shrunk at the steady rate
    necessary to pace out to energy supply shrinkage. You then run into the old
    problem of plenty of resource available relative to the population, but
    insufficeint working money to distribute said resource.

    This of course is why we see the process occuring of the CBs pushing out Credit
    to keep the energy market from locking up completely. They are just trying to
    keep pace with the real shrinkage, but not issue so much credit as to render the
    currencies dependent on the credit markets to completely lose value either. Its
    a system under great stress here on a daily basis.

    As long as linearity can be maintained between the energy markets and the money
    supply, the system can continue to function, albeit in ever smaller “boutique”
    economies all the time. The linearity gets disrupted either by a local implison
    of a given credit market or by a local disruption of Oil supply of a threshold
    level magnitude. Uncelar how large that disruption has to be on an absolute
    value level to reach the threshold, but one suspects that either a Blockade of
    the Straights of Hormuz on the Energy Level or the credit collapse of a country
    the size of say Italy would be sufficient here to disturb the equilibrium too
    much and send the relative economics into a tailspin.

    Money and Oil are EQUIVALENTS in the current society, mainly as defined by the
    Dollar as the most popularly accepted Proxy for Oil. To keep the overall system
    running at any level, even a small Boutique level, a parity must be maintained
    between the currency and the available energy. To do that, a vast portion of
    the population has to be cut off from Credit to buy the Oil, but not so fast
    that the money loses its value or so fast as the Oil depletes in its availabilty
    at reasonable EROEI. its a Tightrope that has to be walked very carefully.

    So far, our Illuminati Masters have walked the Wire very well. I do not discount
    the possibility they can walk the wire to the Other Side and maintain the
    equilibrium all the way through the spin down. This is POSSIBLE. IMHO though,
    it is Unlikely. Much like catching a Raindrop on a Knife Edge and controlling
    how the water splits up, the level of instability here is simply too great. One
    side or the other of the Energy-Money Equation will exceed controllable
    parameters, and then you get a Cascade Failure. Whe that occurs, all Bets are
    OFF. There is no maintaining a Core in such a situation, there IS no “core”.

    I cannot say this one is “Coming Soon to a Theatre Near You.” I can only say to
    you IMHO that it IS Coming and will come inevitably, just as even the biggest
    Mountains inexorably are washed into the Sea. You must not despair here and
    think all is lost, with the outcomes Inevitable and Written in Stone. They are
    not. You just have to be patient and WAIT for the Failure of the Conduits, for
    when they do fail in earnest, it will be a different ballgame altogether. Fail
    they will. I GUARANTEE it.


    • Interesting! I am not sure I followed 100% of it, but I agree that money and the things money buys need to match pretty closely, or prices start to run up (or down). Right now, the government would like to keep money very easy, and this has a tendency to run up the stock market, and perhaps the price of commodities (depending on how much speculation affects real resources).

      We have been used to ever-rising resources, so all of our models are based on this. If there is a sudden drop in resources, then all bets are off. There is a huge amount of debt to be repaid, and it won’t be repaid. This will cause huge disruption–perhaps political upheavals.

      You probably have read David Graeber’s The First 5,000 Years of Debt. I will have to admit I haven’t gotten all of the way through it. It sounds as though credit was used very early on, in the systems he describes–but that would make your model more complicated.

      • No, I haven’t read David Graeber’s book, but I will put it on my reading list. I’ve just been investigating credit history like any typical internet junkie does, following links and reading digests of what other people have researched before me.

        Resource constraints are a problem as a society grows, but generally have not been the main problem, the monetary system gives out before the resources do. This is true in the current situation also.

        A monetary system past true “hard money” which just accounts for production has many other facets to it which give the money “value”, primarily Interest and Scarcity and Distribution parameters. Many different distribution parameters have been tried in different combinations, but mainly the idea is to tie Money to Work in order to use it to access Labor. Monetary systems fail when the distribution system fails and you can’t value labor against resource availability. Oil and Industrializatoin changed these parameters significantly and led to both overshoot on an incredible scale as well as the devaluation of labor and the enhancement of the finance economy.

        In any event, so far as I can figure all the connections, you can’t really have any functioning money in a contracting system. The valuations of assets are too unstable. You have to use other means to maintian social stability, which generally seem to involve a kind of triage through the population. Based on biblical narratives, this seems to work with about a 25% triage of the population base; I am just not sure this can work in the conditions we have achieved as a result of the overshoot of a century of accessing the thermodynamic energy of fossil fuels.


        • I pretty much agree with you.

          In a contracting system, the idea of money as a store of value has to disappear. It is hard to see how this can work. People can pretend for a short time that a little inflation is not too big a problem, but if there are fewer and fewer resources/goods over time, at some point people have to figure out that the money they hold will be worth less and less. So I think you are right about the monetary system giving out before the resources.

          The fact that our economy is self-organized around the system we have now seems to me to be a real problem. It looks to me as if the system will “break,” if there are widespread debt defaults. Theoretically, the system could self-organize around a different set of rules (taxes, ownership rules, etc) and different financial system (with shrinking money availability, perhaps through a monthly value reduction), but it is hard to see how investment would work in such a system. It is also hard to see how we would get from our current system to a new system, quickly. If there were a “safety net” under our current system, or some system that worked in the past that could work again in the future, I would be more sanguine about the situation. But in the end, I find myself with pretty much the same beliefs that you have stated–we are so far into overshoot that the situation looks unfixable.

  5. Pingback: 3 vetenskapliga artiklar på en månad: Peak Oil bryter barriärer | Cruel Crude

  6. Critical Thresholds in Thinking

    It’s great that the mainstream scientific press is taking seriously some of the “the impossible facts” the alternative research community brought up. There’s still a long list of these critical thresholds in thinking to be crossed, though. Some of the biggest are still seriously holding back both the alternative and mainstream research communities, is what I hope many quietly realize.

    One that the alternative research community has taken a lead on is the likely necessity of downsizing the economies, as a survival strategy. Simply said, we apparently don’t know how to run economies except on fossil fuels. For understanding that, though, the alternative community is being hampered by one of the big problems the mainstream community has had all along. Data organized into deterministic models doesn’t represent how economies work.

    The data we encode and use in models is missing all information on how the living parts of economic systems work. So they have no way to anticipate what new group behaviors will develop as new situations develop. The data that can be collected leaves us with remarkably narrow views. It’s an inherent problem with models, partly explaining why our self-interest economic system is now so profoundly acting against its own self-interest, for example.

    Generally, the data we can collect on ANY natural system is NOT adequate for describing it. If you’re a thinking reader you might notice that conflicts with the assumptions of much of environmental science. The heart of the problem is that natural systems develop by growth to work by themselves, from the inside. They develop around networks of learning parts and their direct inter-relationships. It’s their “internal organization and original behavior” that cannot be recorded in ”external data”. So our models are:
    a) missing the hidden information on how systems work from the inside, and
    b) stuck representing them as being controlled by our data from the outside.

    Using mathematical models to predict the economy has already proven itself to be a terrible way to run a planet. The basic problem is that models don’t even really help you discuss the internally animated behaviors of the system.

    It directly hampers the discussion of “peak-everything”, for example, keeping us from discussing the critical question of how the economies will respond to decreasing rather than ever increasing energy to use. Will the ever rising energy and resource prices we can generally expect shrink or collapse them?

    I’ve written some on that particular subject, and lots on the general subject. Basically we need to expand our thinking to begin using a “whole system” paradigm for discussing any environmental system problem. Without it, I think our society won’t make any practical headway at all with our environmental crisis.

    A short good example is:
    Other short discussions:

  7. Hi, Gail. Don’t forget our paper, which appeared in Energy Policy late last year.

    Global Oil Risks in the Early 21st Century (preprint)

  8. Pingback: Bakken, oil, crisis, & prudence « JRFibonacci’s blog: partnering with reality

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