Casaubon's Book

The IEA and Peak Oil

The IEA is the bestest agency in the world at admitting peak oil without actually admitting peak oil. They’ve now achieved a record – three years in a row of precisely matching the language and predictions of the peak oil community without actually saying the words. Matthew Wild points out the incredible overlap:

According to the IEA’s latest Oil Market Report, published August 11, global demand will reach 86.6 million barrels per day in 2010, and then 87.9 million barrels per day in 2011, assuming a continuing global economic recovery. This means demand is set to pass the all-time high of 86.9 million barrels per day established in 2008 before the global economic downturn.

The figure has been given significance by those that say oil peaked midway through 2008. Peak oil refers to the time of maximum production – the high point of the oil output bell chart, after which, as geologist M King Hubbert showed, output will diminish even though much oil remains to be extracted. If oil did peak at 86.9 million barrels per day, then demand would be expected to overtake supply early in 2011.

Wild goes on to add that he personally doesn’t think oil has peaked (which isn’t at all the same thing as saying he doesn’t believe we are facing peak oil – a minority of peak oil thinkers believe Iraqi oil production will delay the peak into the middle of this decade), but that the most important message is that there is an emerging consensus that if economic growth can be re-established, we almost certainly can’t pump enough oil to fuel it.

Fatih Birol’s mantra – “The era of cheap oil is over” is precisely taken from the peak oil movement, and indeed, the last two IEA forecasts have predicted increasingly tight supply constraints and year over year declines that astonished even peak oil thinkers (above 6% in some scenarios). The IEA still doesn’t call it peak oil, and claims that absolute reserves are comparatively plentiful and that the issue is development of resources. That said, however, last year’s whistle-blower scenario, who accused the IEA of bowing to pressure from the US and other nations to exaggerate world reserves does sort of undermine that credibility.

The more important question is whether the IEA’s belated endorsement of basically every tenet of peak oil theory has led them to take on the wrong language. The peak oil movement has gently moved away from using the framing terms about “cheap oil being over” – this was common in the early years, from about 2003 until 2008, whereupon people began to realize that the problem with this language was that it didn’t adequately portray to people the degree to which peak oil intersects with and manifests with economic problems.

That is, when someone says “the era of cheap oil is over” they probably envision a steady price rise of the sort we saw in 2008, where oil eventually hit $147 barrel – and indeed, I think this is what many people in the peak oil community initially envisioned – that the price of energy would rise steadily, perhaps rapidly, making energy resource unaffordable to many people, but also having the balancing effect of making renewable and unconventional energies more competetive and directly pushing people into the kinds of behavior that make sense when gas, heating and other costs rise steadily.

But that’s not what happened. What happened is that the economy crashed, oil prices declined somewhat, and oil remained hard to afford for many people, especially the increasingly large number of poor, but “the era of cheap oil” didn’t end, particularly for people who adapt quickly to new situations and now barely remember the days of gas under $2.

While it is literally true that in an unfolding deflationary scenario oil will no longer be perceived as “cheap” because it will be unaffordable, it isn’t the case that oil won’t ever seem *comparatively* cheap – and this is the reason the IEA may want to take a lesson from the Peak Oil Community and change their language. What I talk about, for example, is the “affordability” of energy resources – not their absolute price. And what I tell people is this – that you will never know from one month or year to the next how much of your income you will have to spend on any of the major energy-linked costs in your life – food, heating and cooling, transportation, etc… It makes it impossible to plan – how much should you be allotting for things? How do you prepare for Christmas when you don’t know if your heating fuel will be affordable? How do you plan for next month when your expenses keep fluctuating and your raises are gone and your job is unstable. And I’m hardly the only peak oil writer who has changed their language, recognizing that the future could play out in complex ways – indeed, probably will.

It is good and useful that Birol and the IEA are sounding the alarm about energy resources – they just might want to watch more carefully what the people they are borrowing their rhetoric from are actually saying ;-).

Sharon

Comments

  1. #1 Dunc
    August 17, 2010

    What happened is that the economy crashed, oil prices declined somewhat, and oil remained hard to afford for many people, especially the increasingly large number of poor, but “the era of cheap oil” didn’t end

    This shows just how far we’ve come… Ten years or so ago (yeah, ancient history… ;)), “cheap oil” meant ten bucks a barrel, and 70 bucks a barrel was practically inconceivable. Well, we’ve just been through the worst economic contraction since whenever, and $70/bbl has remained a stubborn reality… So now we think of that as “normal”.

    The era of cheap oil is over. We’re now into the era of “almost, but not quite, crushingly expensive oil”.

  2. #2 darwinsdog
    August 17, 2010

    I don’t see much utility in calling the rounded summit of a left skewed, more-or-less normal distribution, a “peak.” At fine enough scale there are many peaks & dips, and there’s no expectation that major production spikes are going to correspond with the all-time record production year, month, week or whatever timescale one is interested in. For me, the fine scale is rather uninteresting; it’s the ten year or longer scale that I find significant. At this scale, “peak” is a rather misleading term. Is there supposed to be some political or public relations benefit for calling global maximum oil production a “peak”? Is this why the IEA’s language may be considered “wrong”? Also, price & production may not correspond very well. Is it peak price or peak production that’s being considered? I always assumed it was production people were tracking.

  3. #3 Sharon Astyk
    August 17, 2010

    I thought it was pretty clear that all of us are talking about peak production.

    Sharon

  4. #4 Bee
    August 17, 2010

    Well said.

  5. #5 darwinsdog
    August 17, 2010

    I thought it was pretty clear that all of us are talking about peak production.

    So did I, but all the talk of “The era of cheap oil is over” made me wonder. Price ought to “peak” long after production is in terminal decline. As far as I’m aware 2005 is still peak production year & July ’08 peak production month. Peak production month & peak price month may currently coincide but this will undoubtedly change as production remains flat or declines as price once again rises. When was peak production week, day, hour? I dunno. It’s possible that OPEC can yet hit a new yearly or monthly (or weekly or daily) production peak but the thing that seems clear to me is that the Twenty-oughts was the peak decade. We’re on the downslope of the (smoothed) distribution now and it will be steeper than the upside (left skewed).

  6. #6 Phil
    August 17, 2010

    Please don’t buy into the oil-addicts’ newspeak and call it ‘production’. We’re not producing the stuff, we’re consuming it.

    True production of oil takes place over geological timescales.

    Emptying your bank accounts does not produce money – it helps you consume it…

  7. #7 Brad K.
    August 17, 2010

    @ Phil,

    When in Nebraska, and you enter a town with a sign that says “Norfolk” – expect to pronounce this “North Fork”. You are in Nebraska, and if that is how they pronounce it, well and good. It is their town, they call it what they want.

    If you are in Virginia, now, and enter a Navy town with a sign that states “Norfolk”, why in Virginia (vuh-GIN-ya) the name of the town is naw-fuhk. Again, the folks that live their get to decide what their town is called.

    As far as producing oil goes, the history of the industry started with oil coming out of the ground. Even today the initial contact with the asset is called “production” because that is when the oil becomes a product, sold, transported, taxed. It might well be the IRS that calls it production – they tax assets and produced valuables, and the oil as it leaves the ground is the first time the IRS can start tracking and taxing. Anyway, when the oil industry – or coal, or gas – leaves the ground, they call it production. If you care to have a dialog and interchange meaningful information, let alone intend to change or improve affairs, then it benefits the speaker to adapt to the limitations of the listener.

    I could say that my garden (attempt) produced weeds and oxygen exchange, that it elevated ground water into the atmosphere. Me, I call the watermelon I picked last week and brought out of the garden “production”.

    You are correct about how oil came to be formed, and how it came to be situated in various geological formations, some of which are more economically accessible than others. But if you want to talk about the oil industry, about consuming energy, then the starting point is the industrial/commercial starting point, the point where an asset is first transported or transformed to increase economic value.

    If you are interested, I could also explain that the first chicken came from a chicken egg; that egg, though, was a sport, a mutant, produced by something other than a chicken. That first chicken egg was a chicken egg because a chicken came from it.

  8. #8 Don
    August 18, 2010

    FYI: I just heard this on NPR’s Morning Edition a few minutes ago. They aren’t saying “peak oil” either, but it sure sounds like it.

    http://www.npr.org/templates/story/story.php?storyId=129252215

  9. #9 darwinsdog
    August 18, 2010

    If you are interested, I could also explain that the first chicken came from a chicken egg; that egg, though, was a sport, a mutant, produced by something other than a chicken.

    No, No, NO.. Humans name a bird “chicken.” The chicken came from an egg laid by a bird very much like it; as much like it as your parents are like you. Gradually, over time, chicken-like birds may have changed sufficiently so that humans decide to name the remote ancestors of today’s chickens something else. That does not mean that the first chicken was “..a sport, a mutant, produced by something other than a chicken.” There was no abrupt change whereby something not a chicken gave rise to a chicken in a single generation. Natura non facit saltum. If you are going to attempt to explain how speciation occurs, Brad, you should make sure that you understand it yourself.

  10. #10 C. Paul Davis
    August 18, 2010

    I write a lot about Peak Oil and I find myself more recently using the word “recovery” in place of “production”.

    Also, I now use the words, “unaffordable oil” in place of “cheap oil”. What is cheap for some people is too expensive for others.

    What is clear is that the world will run out of oil completely sometime in the future and all of us (that means most of the 6.8 billion people in the world) who count on affordable oil will find it unaffordable to use and burn as transportation fuels much less for the 300,000-plus consumer products we count on in our daily lives.

    So, I leave you with the question:

    If the world is struggling to recover (not produce) over 86 million barrels of oil per day with 6.8 billion people (or 4.6 barrels of oil per year per person), what will we do when there are 9.8 billion people in 2030? The 9.8 billion people will require about 95 million barrels versus 86 million barrels of oil per day today of oil per day just to stay where we are today.

    Either we find a suitable and affordable replacement for oil or a whole lot of people are going to have to die. I also see global oil wars in the near future.

    All of this is going on and it seems that no one in Washington wants to address the problem except to say, “The United States must be independent of foreign oil”.

    Go figure.

    Paul

  11. #11 dewey
    August 18, 2010

    Well, a whole lot of people may indeed die, if we decide to kill them for their fossil fuels, but in no way do a lot of people “have” to die by 2030 (beyond the many millions who “have to die” every year) because production per capita drops. The majority of what we use fossil fuel for is NOT basic life-sustaining subsistence, even if many of us have come to think of it as such, and if we cut our use in half we might actually end up in better health.

  12. #12 darwinsdog
    August 18, 2010

    Either we find a suitable and affordable replacement for oil …

    There isn’t any.

    … or a whole lot of people are going to have to die.

    Ya think?

    The plain and simple truth is that the biosphere cannot support anywhere near the current human population sans massive fossil fuel inputs. Such inputs can’t be sustained and even if they could be, we are poisoning the atmosphere and surface oceans with oxidized carbon. A whole host of environmental insults stemming from human overpopulation and over-exploitation and consequent depletion of natural resources is precipitating a mass extinction episode unrivaled over the past 65 million years. Extinction is the fate for all species of large vertebrate including our own species. It will require ~10 million years before biodiversity recovers to pre- human perturbed levels.

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