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.
This entry was posted in Financial Implications, News Related Post, Published Articles and tagged , , , , , , , , . Bookmark the permalink.

77 Responses to Three Major Journals Publish Articles on Limited World Oil Supply

  1. well i certainly know where you think we are on these graphs:

    but i have moved away from sharing that place with you

    simply because i prefer to live without the gloom that goes with being certain about something we can’t be certain about



  2. Jan Steinman says:

    To me, the most interesting thing about this is that ¾ of the authors are not from among “the usual suspects” of peakists. (Pardon me, Gail, for lumping you in with that group!)

    Do Kerr, Murray, or King have any history with the peak oil crowd, or can we take this as evidence that the message is getting through to a wider group of researchers and authors?

  3. Danny Hannan says:

    G’day Gail et al,
    Good to see others that have the accuracy of logic with the ability to do some low level mathematics, data analysis and project established trends.
    You can view my analysis here
    It is a shame that there are not many others like us. Unfortunately we are fighting the Keynesian economists who seem to have no idea that fiat currencies are meaningless and that the one true and natural currency is energy.

  4. Ed Boyle says:

    This may slowly get to be similar to the climate change analysis whereby all scientists are on one side and all others on the other.

  5. Pingback: Las principales revistas científicas confirman que se está acabando el petróleo

  6. phil harris says:

    1. James Murray is in the School of Oceanography, University of Washington, Seattle, Washington 98195, USA. He was founding director of the University of Washington’s Program on Climate Change.
    2. David King is director of the Smith School of Enterprise and the Environment, University of Oxford, Oxford OX1 2BQ, UK, and senior science adviser to the bank UBS. He served as chief scientific adviser to the UK government in 2000–07.
    3. Richard A. Kerr has an education in science and journalism and has been a Staff writer with Science since 1977.
    Nb. Leading journals ’Nature’ (UK) and ‘Science’ (US) have been publishing key studies from research in atmospheric science for decades. King was much exercised by the enormity of policy implications of evident climate change when he was an advisor to UK government.

  7. Robin Datta says:

    It takes energy to convert resources (the primary economy) into products (the secondary economy). Economic”growth” is an increase in the rate of this conversion, which entails an increase in the flow of energy. The absence of such an increase can be compensated by increasing the efficiency of energy use upto the point of optimisation. Beyond that point, sans increased energy flow there will be no economic growth: au contraire there will be regression instead of growth if energy flows contract. 

    Employment directly or indirectly is activity to manipulate energy streams that conversion resources into products. The shrinking of energy streams will be associated pari passu with shrinking employment – in conventional jobs. Those who manipulate smaller energy streams, as in small-scale agriculture, will be correspondingly less well remunerated. 

    If increasing the energy streams requires a disproportionate commitment of other resources, manipulations of the tertiary (symbolic) enonomy by creating more symbols (such as pieces of green paper bearing pictures of dead presidents or magnetised particles on hard drives) will not rectify the situation. 

    • Strav7 says:

      Robin, my way of thinking is right in line with what you have just said. Resources are Delta’ed based on energy. 1st order, second order.

      One can only hope that we quickly begin to see more things made with human hands, as they are inevitably more commonly beautiful than mass-produced soon-to-be trash.

      Best name for a company, practically ever, by the way, is “art in the age of mechanical reproduction”.

      I have an old friend who distills their organic root beer liquor.. Really delightful stuff if you can pick it up in the state/country where you live! 😉

      • Jan Steinman says:

        Strav7 wrote: “One can only hope that we quickly begin to see more things made with human hands, as they are inevitably more commonly beautiful than mass-produced soon-to-be trash.”

        Even better, things made with human hands out of mass-produced trash!

        I’m hoping that the time-honoured profession of “tinker” will once again come into vogue. At least, that’s how I plan to at least partially make my living.

        • strav7 says:

          good point Jan.. you’re too quick u replied while i was addenduming. 😉

          yes why not re-use the useful properties of those things we already have?

          reuse –> repurpose… annd add that special touch.

          you’re great at synthesis Jan, and your comments here are much appreciated. I think I was a little quick with an instigative comment in the past. I’ve thanked Gail a myriad of times for her work. (I feel like the dudes praising the scarers in Monsters, Inc. in regards to her) Thank you for your work also. Your mention of the maximum power principle a few months ago really helped shaped the way I view world dynamics.

          Also, your analysis affected by Tainter’s collapse theories and ensuing convo’s has made his work a part of my very very long to do list.

          Also, Gail, in regards to your comment below, if resources are x, and energy determines the rate of change of x…. then both depletion rates, and resource quality determine the rate of change in the rate of change of x. I dunno how much you’ve studied calculus, but basically you named the lesser mentioned of the two factors in the second order derivative in the whole equation (assuming it is constrained in the liebig sense by energy).

          keep up the good work! *hoping for a soft landing*

          • strav7 says:

            oh, and as you mentioned, ALL (x”) / population

            I don’t know if this is a new framework or if it is just new to me. seems like a very functional basis from where to start things.

            • strav7 says:

              p.p.s. when all their power turns into vapor,
              if i miss you, well that’s my fault.

              totally epic song snippet provided Free Of Charge!!

              I realized, what seems new to me is just standard fare. Still maybe the perspective will help out somebody. g’night.

          • Jan Steinman says:

            Thanks for the kind words, @strav7. I have a fascination with unconventional thinking that sometimes gets me into trouble.

            No worries about any “instigative comments.” I strive to take nothing personally. It’s all good.

            But unlike you, I’m not “hoping for a soft landing.” That seems to me to be a recipe for a harder lesson later. Let’s get it all over with, so the lessons are clear.

            What I’m hoping for is a renaissance in earth-based spirituality and a reverence for natural systems, which I don’t think can happen while fundamentalists of all stripes are hell-bent on using it all up before the afterlife. The “afterlife” is Now.

          • Yes, I have definitely studied calculus. Even taught it as a grad student. So I am pretty familiar with first and second order derivatives.

      • Strav7 says:

        Also, coincidentally, this friend happens to be a degree’d economist who totally thinks that substitution will mitigate peak oil. :-/

        Who knows, if we’re really lucky, maybe we can achieve a lower energy steady-state renewable economy. I’d still like to see a handmade renaissance. (although all energy costs accounted for I worry the only way that will happen is post collapse)

    • You are right. Furthermore, the fact that we are moving to lower and lower quality resources adds to the need for an increasing rate of conversion. The fact that there are more people on earth doesn’t help either.

  8. Pingback: Las principales revistas científicas confirman que se está acabando el petróleo | Conciénciame! // 2007-2012

  9. russell1200 says:

    The stairstep ramp up in lending instruments within our economy is to some degree a reaction to the oil issues of the early 1980s (when adjusted prices when inflation adjusted prices were at their highest) and the demographic bulge of the baby boomers. With growth appearing to be stagnating and limited, lending policy changes as early as the Carter Administration were a much more attractive option than previously.

    This types of feedback loops of course make all of it very tangled up and difficult to seperate out and say “this caused this”.

  10. Chris says:

    This review paper by the authors of the UK Energy Research Centre’s peak oil report was also published in Energy last month:

Comments are closed.