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Why running out of oil isn't the problem

December 19, 2017 - 12:04 PM



A decade ago I stumbled across the idea of "Peak Oil". It turned out to be an incredibly complex topic that begged for simple solutions. Surely there couldn't be anything to the idea or the government, the universities, or maybe even the media would be looking into it and we'd all be working towards a solution. That it didn't appear to be on anyone's radar seemed to be evidence that it wasn't really a problem.

But it is a problem, one that we should all be concerned about.

Many who don't really understand what peak oil is all about scoff at that, stating that "we will never run out" or "there is more oil than we could ever possibly use". They would be absolutely correct in these statements. But Peak Oil was never about running out of oil. It has always been about the impacts depletion of this resource will have on our economy.

There are two simple ideas that can cut through some of the complexity and help us grasp what peak oil is really all about. The first encapsulates the idea of "Energy Return on Energy Invested (EROEI), a concept that is often used to explain why we should be watching for problems with our energy supply.

"Oil can only be useful as an energy source if the energy contained in the product (ie transport fuel) is greater than the energy required to extract, refine and deliver the fuel to the end user."

This is a very simple idea. The major criticism of it is that it is too vague. Where do you draw the line on what gets included in "contained"? As a simplifier of a complex issue though, it works. It is easy to see that once the energy required to extract and process a barrel of oil exceeds the amount of energy that barrel provides, it becomes an energy sink instead of an energy source.

It is important to clarify what is being measured when discussing Peak Oil. Conventional oil has a high energy value as it is relatively easy to find, pump, and refine. Unconventional oil is the opposite. Production of conventional oil peaked in 2005, while total production of what is called "all liquids" continues to slowly increase as more unconventional sources are exploited.

Measuring the energy itself, rather than the quantity being pumped, is a better metric if we are concerned about impacts on our economy. Even as production is slowly increasing, the energy available in each barrel to the rest of the economy is decreasing much more rapidly. As the energy supplied by oil underpins the entire world economy, it would be useful to examine whether this might be having an impact or not. Some think it does, and point to "peak world GDP" as an indicator.

This brings us to the second simplification we can use to get a handle on how oil and our economy get along (or don't).

"The price of oil cannot exceed the value of the economic activity generated from the amount of energy available to end-users per barrel."

Peak Oil isn't really about running out of oil. It is about running out of affordable energy. Once the energy produced by a barrel of oil falls below the energy to produce it or the economic value of that energy drops below the price per barrel, we have a problem. It is actually a predicament, as there doesn't appear to be a solution on the horizon beyond substituting massive amounts of debt for energy, something that is evident in today's economy.

At this point we need to talk about renewables. The hope is that renewable sources will continue to drop in price as compared to the source it intends to replace, primarily coal and natural gas. What tends to be glossed over is that every solar panel and windmill needs oil to produce, transport, and install. This is somewhat offset by a reduction in the amount of oil required to mine and transport coal and gas. Per kW hr though, it is cheaper to handle the latter, as we have become very good at moving both of these commodities in bulk.

A useful simplification is to ask where the oil required to build all of the solar panels, windmills, and hydroelectric dams going to come from? We will need to pull a large number of barrels from our stocks to fuel the transition. Whether these barrels come from increasing production or are taken away from other parts of the economy, the shrinking available energy in each barrel across the board becomes a problem if GDP growth remains a must have.

Many think the market will provide. Economists theorize that as oil becomes scarce that other sources will become viable. They do not take the entire idea of affordability into account. The assumption is that the economy has an infinite capacity to pay higher prices for a commodity until that commodity is physically depleted and those higher prices will generate innovation into alternate sources. The lessons of last century and again in 2008 show us that that is not actually the case.

Will we have enough oil available at prices we can afford to not only transition, but keep 7.5 billion people at the standard of living they have become accustomed to while growing the global economy?

Like climate change, Peak Oil is complex and controversial, mainly because it promises to upset some people's notions of what "should be" when it comes to technology and political economy. We will always have plenty of oil available to us. We will never run out. And as long as we keep repeating that, over and over, business as usual can continue.

Right up until it can't.

— Chris George believes one measure of a just society is found in how well it balances fiscally conservative economics with social responsibility and environmental soundness in all of its living arrangements.

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