THEGREENGROK

Peak Oil Finally Piquing Analysts?


by Bill Chameides | November 11th, 2010
posted by Erica Rowell (Editor)

Permalink | 39 comments
One of the main conclusions of a new report on energy? The age of cheap oil is behind us.
One of the main conclusions of a new report on energy? The age of cheap oil is behind us.

According to a new report: We need to put a carbon price on oil to keep the price of oil down.

You know how the climate-denier politicians love to warn the public that any climate legislation will increase energy costs and destroy our economy? A recent report pokes some holes in that reasoning. The authors of the report? None other than the International Energy Agency or IEA.

The IEA is an intergovernmental organization originally set up to provide energy analysis to its 28 member governments in the wake of the 1973-74 oil crisis. One of its main tasks is to produce an annual report on the state of global energy — it’s called the World Energy Outlook. If you’re an energy wonk, and who isn’t these days, it’s pretty heady stuff, filled with cool facts and figures about what has happened and predictions based on economic and energy models about what is likely to happen.

The IEA has always been focused on fossil fuels. Two of its founding objectives were to:

  • “maintain and improve systems for coping with oil supply disruptions,” and
  • “operate a permanent information system on the international oil market.”

And even though its mandate included “improv[ing] the world’s energy supply and demand structure by developing alternative energy sources and increasing the efficiency of energy use,” the IEA’s reports tended to focus on fossil fuels while largely marginalizing the role of renewable energy. But that has changed.

IEA Jumps on the ‘Peak Oil’ Wagon in 2008

IEA’s about-face began two years ago when, in a departure from its typically confident projections for petroleum supply, the organization reported that fields were declining at double the rate of earlier projections and projected that conventional oil would peak in 2030. Previously, the idea that oil supplies might one day peak had been “dismissed,” to quote one reporter referring to IEA’s 2005 report. The IEA’s executive director even went on record referring to those concerned about peak oil as “doomsayers.” Not so anymore … especially for petroleum — the scarcest of fossil fuels. By some reports it took a whistle-blower at the IEA to get the agency to fess up about impending oil shortages. But that was a couple of years ago. Flash forward to 2010.

IEA Bids Farewell to Cheap Oil This Year

IEA’s three-volume, 700-plus-page outlook for 2010 is hot off the presses, and one of its major conclusions [pdf], once again, is that the age of cheap oil is behind us. It’s a perfect storm headed our way — a steady rise in global demand for oil crashing up against an increasingly limited supply of economically recoverable oil. By 2035, the group projects, demand for oil will increase from about 84 million [xls] to 107 million barrels per day, and prices will rise to $135 per barrel — a range we painfully visited briefly during the spring and early summer of 2008. (The current price of oil is about $80 a barrel.)

But There Is a Potential, if Surprising, Fix

That’s definitely going to put a sizable dent in our wallets and end up sending a lot of dollars to foreign shores. But the IEA points out that there is one way to get off the oil-price roller coaster. If we enacted policies to reduce greenhouse gas emissions (and promote renewable energy), demand could be as much as 10 percent less, a prospect that would in turn reduce each barrel of oil by about $20 in 2035.

The bottom line is that alternatives to fossil fuels are needed to rein in their prices and ease supply constraints while they are a dominant player on the world stage, and economists tell us that the most effective way to get there is to put a price on carbon.

It’s kind of odd, but it could turn out that the best way for us to save money in the long run is to put a price on carbon and thus discourage people from consuming so much gasoline and driving the price up.

Now, I realize that this might upset the anti-cappers and anti-carbon taxers, but, hey, don’t blame me — I’m just the messenger.

filed under: climate change, economy, energy, faculty, fossil fuels, global warming, oil, renewable energy
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39 Comments

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  1. Peter B
    Nov 30, 2010

    A tax on carbon is not the answer. We have plenty of non conventional oil. Oil Sands, extra heavy crude, deep water crude, oil shale can meet are energy needs for decades to come. However all of these resources require more energy to extract then conventional crude. Therefore, a tax on carbon will make these resources more expensive to develop. If you are worried about peak oil a tax at the pump makes sense (as it would reduce consumption) but a tax on carbon does not because it would make it more expensive to develop non conventional crude.

    • Bill Chameides
      Dec 7, 2010

      Peter B: I guess you are correct in a sense, if all you care about is continuing our dependence on oil via nonconventional sources. Alas, it’s not that simple: 1. Consider the enormous environmental costs of developing nonconventional oil. 2. The only way nonconventional oil becomes competitive is if the price of oil increases. IEA’s analysis predicts such high prices (without a carbon price to lower demand) even with the development of nonconventional sources.

  2. david wirsig
    Nov 18, 2010

    my take – I am no expert but when I divide the estimated oil reserves (easily recoverable oil) by barrels of oil per day or year. I can see a short-term problem that is hard to overcome – and if you factor in refining capability and the rapid increase of developing countries use of oil (india and china for two) and an increase in world population (users) – I think we are in trouble. One example: just divide the use of oil in the US alone per year — by the estimated reserves (whose estimate was just reduced by 90% — but I took the older estimate!) — in Alaska’s large reserve — I come up with a little under 50 days of US oil use. Now this is not the only source but it is one of the largest (and is the largest for the US) — you will see that we ARE running out of oil — and at the very least will exceed production limits given refining capability and increases in oil use. that spells big trouble since most now agree we are past, at, or approaching peak oil (easy to get at oil) and since this becomes an exponential problem we will be using it many times faster than we have ever used it in the history of the world – on the downhill side of the curve. Time is against us to develop alternative means and get them into production and use before disaster strikes. Just my take but the math seems pretty easy to see and if you know much about exponential functions then you know that we are at a critical juncture in many of the earths resources (food included) – they are not unlimited and they are exasperated by population increase. note: new estimate for Alaska: http://www.thedailygreen.com/environmental-news/latest/national-petroleum-reserve-estimate-1027

    • somebody with a big mouth & a small brain
      Nov 20, 2010

      50 days reserve from a supposedly big reserve, it hardly seems worth while exploiting. The Gulf of Mexico is similar, except better than 50 days. It makes me think that oil lasting to 2035 at a price less than that of 2007 is very likely a fiction. The demand in China and India is rising rapidly. My observation is that all of the biofuel and unconventional sources like coal liquids and tar sands will be severely stretched to make up the shortfall in the oil decline.

  3. G-man
    Nov 16, 2010

    The American public needs to be educated on ‘renewable”, and fully understand that renewable does NOT = constant. Big problem s arise when the wind doesn’t blow at a wind farm that will supposedly produce 4 megawatts of “eco-friendly” power. so what does the public utility do? Why turn on a natural gas fired power plant because all those “green” citizens want electricity 24/7, and not just when the wind blows or the sun shines. So the utility pays for a conventional power plant and a wind farm, and simply raises rates to pay for two producers instead of one. And that conventional plant still needs engineers and employees and a steady supply of natural gas. And the grid needs a constant feed. Wind and solar just ain’t gonna get it done on a national scale. Unless we populate all of Texas, NM, and Arizona will wind and solar and move all the folks elsewhere.

    • Jim
      Nov 16, 2010

      G-man, it would not take nearly that much area to generate enough power for the country. I’ve heard estimates like 1-2% of the land area is all that would be needed, and a lot of that would be in deserts. Also, you use power storage and the smart grid to store power that is generated by wind and solar when the power generation is above demand. There are a number of power storage options being used today on a larger scale such as flywheels, pumping water to a height, large battery packs, compressed air, etc. Also, the smart grid helps with this, which I don’t understand completely, but as an example you can use everyone’s water heaters as a kind of power storage in off peak hours. So it is doable, it would take a little more infrastructure but it’s not quite like you might imagine.

    • Bill Chameides
      Nov 19, 2010

      G-man – There are alternatives to deal with intermittency: 1. Energy storage; 2. Balancing.

  4. Travis
    Nov 15, 2010

    How does anyone know the correct price for carbon? The answer is, they do not know. As Ludwig von Mises tells us in Human Action, “Prices are a market phenomenon. They are generated by the market process and are the pith of the market economy. There is no such thing as prices outside the market. Prices cannot be constructed synthetically…. They are the result of a certain constellation of market data, of actions and reactions of the members of a market society.” P. 392 As F. A. Hayek tells us, this data is specific to time, place, and circumstance. It is beyond the ability of any individual or individuals to collect this information. Any price selected for carbon will be arbitrary, based on very incomplete data, and wrong. Travis

    • Jim
      Nov 16, 2010

      That’s the whole reasoning for cap & trade, you let the market determine the price based on the need of industry to pollute. One of the first implementations of this was for reducing acid rain, back in the 80′s. The idea for this came from the republican party. When it comes down to it, pollution is a cost that needs to be factored into the price equation. The cost is to the environment and our health.

      • Travis
        Nov 22, 2010

        Jim; You confuse our economic system of crony capitalism or corporatism with free market capitalism. In a free market system, no pollution would be seen as a “need to pollute.” Pollution correctly would be seen as a violation of the private property right of the individuals who suffered the invasion of someone else’s affluent. Now that CCX is dead, perhaps cap-and-trade is also. Cap-and-trade was nothing more than an effort by corporatist businesses to get government’s imprimatur for polluting. The Goldman Sach’s crowd hoped to make a little money on the side. There are better ways to deal with the issue. Travis

      • Bill Chameides
        Nov 19, 2010

        Travis: you miss the point. The idea behind “pricing carbon” is that it us a market-based approach. The market determines the price just like it does for most commodities in our economy.

        • Travis
          Nov 22, 2010

          Dr. Chameides; With all due respect, the “market” does nothing. It is the name we give to the setting in which individuals trade goods and services. The prices of commodities are determined by the purposeful action of individuals trading those commodities. The “market” is not capable of cognition or purposeful actions. Travis

          • Bill Chameides
            Nov 30, 2010

            Travis: OK, but for the vast majority of commodities, a single individual does not determine the price. So what do you call the sum total of all the individual actions that ultimately set the price of a commodity? How about the market?

            • Travis
              Nov 30, 2010

              Dean Chameides; I do not call it the market. I call it the PRICE. Travis

  5. James Bush
    Nov 15, 2010

    Matthew Hoffman needs to look up “net energy” and EROEI (energy recovered/energy input). How much of our existing energy supply should we divert from sustaining our present living in order to obtain energy for our future? We heralded corn-based ethanol as the substitute for oil-based motor fuel. So farmers bought oil-based diesel fuel to plow their fields, then the bought some more diesel fuel in order to plant seeds, etc. Turns out, the EROEI was around 1 (one) — less, according to some studies. The oil industry 50 years ago often had an EROEI of 100 or so. Now, we’re looking at 10 and declining. Only nuclear power SEEMS to have the potential for a greater EROEI. But, it faces many challenges. God Bless America!

  6. James Bush
    Nov 14, 2010

    America uses almost 1/4 of the world’s oil, because we subsidize driving. The study of surface transportation infrastructure found that license fees and gas taxes pay less than 2/3 the cost of roads, down from 3/4 in the 1980s. Under-pricing roads means lineups, much like the lineups in Soviet grocery stores. We devote some 4000 square feet of pavement to each vehicle, resulting in everything being dispersed. This contributes to our infrastructure problems as well as the obesity/diabetes crises. The financial problems of state and local governments are aggravated by the fact that gasoline taxes do not pay for traffic regulation, which can account for 1/4 of suburban police costs. It is time to phase out subliminal suburban socialism. God Bless America!

  7. Troy
    Nov 14, 2010

    I think without a doubt the prediction made New York Times about oil prices only being 135 dollars a barrel in 2035 is absurd. We saw oil prices hover around that level in 2008. I think it’s shameful to think that professors like you aren’t outright challenging that article. Inflation alone should drive the price up higher than that! When numbers like that start popping up I can’t help but be fearful of what secrets aren’t being told to the public.

    • Bill Chameides
      Nov 19, 2010

      Troy: The prediction was not from the New York Times; it was from the International Energy Agency. And as the report was prepared by energy economists — and as I am not an economist — it would be rather presumptuous of me to outright challenge it. And by the way, the prediction of $135 a barrel is in today’s dollars and therefore inflation is not relevant.

      • Steve
        Nov 19, 2010

        Bill, I wholeheartedly agree that we should respect the experts. However, the article clearly states that the IEA has modified it’s opinion from in 2005 saying oil would never peak, to in 2008 predicting peaking in 2030, and now to saying it has already peaked. Hard to really think they are accurate in their predictions. At least their public predictions.

        • Bill Chameides
          Nov 30, 2010

          Steve: To mangle a poem by Gertrude Stein, a prediction is a prediction is a prediction. Since predicting the future is a tricky business, I think one should always view a prediction with some skepticism. There are many reasons why an organization such as IEA might change its predictions over time. I guess incompetence could be one, or even a bad case of dissembling. It’s also possible that it is the result of having access to new and/or better information.

      • Troy
        Nov 20, 2010

        Your blog nor the article you let the New York Times publish took the effort to mention those figures for the future oil prices in 2035 are based in 2010 dollars. I think it’s rather absurd that you can tell me that because you are not an energy economists that you are not qualified to outright question those numbers. Over the last ten oil has doubled when adjusted for inflation and I truly doubt you could not do the math. If we increased oil prices at the same rate from the last ten years then oil would be above $140 a barrel in 2010 dollars. How is it that with an ever growing demand for oil and peak oil behind us that you do not expect oil to increase at a rate higher than that in the future? No current technology has stemmed our yearly growing use.

        • Bill Chameides
          Nov 30, 2010

          Troy: Fact is, I am not an economist. You may be right about the price of oil in 2035. Looking at past trends however can be misleading. While inflation-adjusted oil prices shot up in the last decade, they were relatively constant during the ’90s and actually decreased in the ’80s. http://www.inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp What’s going to happen in the coming decades? I guess I’ll leave it to you and the energy economists to figure out.

  8. matthew hoffman
    Nov 14, 2010

    how can a scientist at a respected university get away with still calling hydrocarbons a ‘fossil fuel’ when saturns moon titan contains GIGANTIC oceans of methane? Or that we are finding oil at TWICE the level below sea level that the oldest fossil on record has been found? peak oil is a myth! we will have plenty of oil and if the earth runs out, we will go to space and get it. please do your own research- start by googling the phrase ‘abiotic oil’ or ‘abiogenic oil theory’ and you will find that common sense leads to the conclusion that hydrocarbons are primordial substances, not compressed dead dinosaurs. hydrocarbons (crude, nat gas, methane, etc) have been synthetically produced in labs, but it has NEVER been proven that they originate from decaying organic matter.

    • Troy
      Nov 15, 2010

      We might actually be able to produce oil in a lab. How are you going to find anything on this planet that can create it for the prices we are paying? Or produce enough of it? Do you know how much oil the world uses in a single day? 31 billion barrels, that’s not gallons, that’s barrels. There are 42 gallons in a barrel of oil, so that’s over 1.3 trillion gallons a day. Think about how cheap oil is and how the difficulty of extracting it only gets harder as you use all the easy oil. When we use up more and more energy to extract oil then things get complicated and we usually have to use more energy to get oil. Personal I can’t think of much else on the planet that we could ever compare the quantities of oil to besides water. We’ve made enormous seas and lakes run dry too (Aral Sea). I don’t think we need to disagree that there’s no reason why we can’t do more to use less just to avoid some of the concern.

      • Larry
        Nov 16, 2010

        “Supply” makes the absolutely valid point, and it applies to all non-conventional fuels; that the real challenge is to scale them up to achieve parity with conventional supply and a price that is sutainable to support economic growth. At the moment non-conventionally sourced oil, that is, that which does not come from drilling on dry land or in reasonably shallow water, is relatively expensive both in dollars and/or the energy required to produce it. The correction to “supply’s” point is the level of daily production of the stuff. As the main article notes daily production of oil from all sources is around 84 millions of barrells per day (mbpd). 31 Billion is the annual production. That’s still 3.5 thousand million gallons of oil required to be extracted and or produced (in the case of oil sands and shale deposits) each and every day.

      • Niko
        Nov 17, 2010

        The world consumes ~ 31 billion barrels of oil per year, that is about 85 million per day.

      • matthew hoffman
        Nov 17, 2010

        the world uses around 85 million barrels of oil a day. http://www.eia.doe.gov/emeu/ipsr/t24.xls -matt

      • Bill Chameides
        Nov 19, 2010

        The idea of making oil is a non-starter since it takes energy to make oil in the first place. You could use solar energy to make hydrocarbons — scientists are working on that — but I would call the product solar fuel not oil.

    • Larry
      Nov 16, 2010

      Firstly Dr. Chameides is technically correct to identify the great majority of fuels used today as “fossil” in that they are in the main “dug up” which is what fossil means. One might quibble perhaps that hydrocarbons sourced from algae are not “dug up”, but in the main the good doctor is correctly. In this regard even abiotic oil would need to be probably “dug up” hence “fossil”. I would hope that by time we look to sourcing hydrocarbons from Saturn, we are beyond the need to do so for an energy source.

    • Sea Young
      Nov 16, 2010

      A Dept of Defense think tank has recommended a petroleum free military in thirty years. The idea appears to be gaining traction within the ranks. This would suggest that civilian petroleum in fact has peaked and the earth probably does not have a creamy petro filled nougat center.

    • Troy
      Nov 16, 2010

      Sorry some jerk gave me the wrong data. I looked it up again. It’s 85 million barrels a day. Or 3.57 billion gallons a day. I usually 2nd check that but there is plenty of misleading data out there and like everyone I make mistakes. I’d rather be human than claim I’m always right all the time. I’m here to correct my mistake.

    • Seth
      Nov 17, 2010

      Matthew, if the amount of energy expended to acquire a given unit of energy meets or exceeds the amount of usable energy recovered, then the effort is not worthwhile. Methane on Titan would probably not be very useful to us. Also, the peak oil curve is based on extraction rates. How oil is originally generated, abiotically or not, doesn’t change the situation much.

    • Paul
      Nov 17, 2010

      Hmmm. Following your advice and Googling “abiotic oil” led me to the Wikipedia entry for “Abiogenic petroleum origin,” which is described (in the very first sentence) as “a largely abandoned alternative hypothesis to the prevailing theory of biological petroleum origin.” Careful what you say to Google. Hint: Science is more than just common sense.

      • matthew hoffman
        Nov 17, 2010

        paul, did you read the rest of the article????? hydrocarbons are found throughout the universe, on asteroids, on saturns moon titan, etc. so either there’s life on other planets, or oil is a primordial substance- a basic building block of the universe. but then again, i dont see why both couldn’t exist. -matthew

        • Bill Chameides
          Dec 2, 2010

          Matthew: Primordial oil, if it exists, would be found well below the surface in the Earth’s mantle — far too deep and complicated for extraction with today’s technology.

    • Bill Chameides
      Nov 19, 2010

      Matthew: Yes, the Earth does hold some primordial hydrocarbons, esp methane, and I guess one could argue that that stuff is technically not a “fossil fuel” (although Larry argues otherwise). But isotopic analysis and the geologic formations where we find and extract hydrocarbons provide very strong evidence that that stuff is in fact derived from organic matter. And yes you can produce hydrocarbons in the lab, but that takes energy — according to the 1st law of thermodynamics at least as much as you could extract from it — and so they would be very poor candidates to provide us with energy. The projection of peak oil is based on where we know oil to be in the ground — where is all this primordial oil hiding and why have we not found it yet. The idea of going into outer space for hydrocarbon fuels is cool but hardly a solution for the next decade or two.

    • Rachel Mark
      Nov 23, 2010

      “Major fossil fuels such as coal, petroleum and natural gas, and its derivatives such as plastics, paraffin, waxes, solvents and oils are hydrocarbons. Hydrocarbons contribute to the formation of tropospheric ozone and greenhouse gases.”

  9. Jim
    Nov 12, 2010

    In places such as ANWR and the Gulf an the East Coast. But as you have mentioned before, that is at best a stop gap measure. It will take years to realize the return and there simply isn’t enough there to make much difference. But it won’t stop people from shouting for more exploration. Then there is the whole pipeline thing from the the shale in Canada, and mining for oil shale in Colorado. I’m concerned that people will use this report as an excuse to do all these things, rather than follow the rational path, at a big cost to our environment.

    • Bill Chameides
      Nov 19, 2010

      Jim: I hear you.

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