Peak Oil: What We Can Do

(Posted by John)

If the optimists are right and Peak Oil is two decades or more away, we're in a really good position. We've got time to turn our motor fleet off of oil, and begin working hard on squeezing the carbon out of our energy diet. But there's something that needs to be said - even if Peak Oil doesn't come until 2030, we need to start now if we want to avoid severe economic problems. This is confirmed by a Department of Energy report (warning - large PDF) which states very clearly that, unless we get our economies off of oil, we face very serious problems - possibly worse than the Great Depression. The simple reason for this is that replacing two hundred million motor vehicles (the US fleet) takes time. If we're caught without adequate substitutes, we're looking at a decade or more of fuel shortages.

So what are the options? There are three usual answers: Better oil recovery, alternative sources of oil, or non-oil substitutes. But the first two answers are problematic.

Better oil recovery in particular is unlikely to save us. The example of the United States is instructive. After peaking in 1971, US production never, ever reached that point again. The US hasn't managed to even halt the decline in it's production. This is in the richest, most advanced oil-producing nation in the world. It should be said, however, that this has been in a world with cheap oil production overseas - it's at least theoretically possible that once the oil industry realizes that the party's over they'll put more money towards better recovery. At the same time, it's not like oil companies have been short of funds lately - if there were ways of getting more oil out of old fields, it's hard to believe they wouldn't have found them already. Still, it's something to keep in mind.

The second usual answer is unconventional oil. This includes most famously the Alberta Tar Sands, but basically any oil that isn't crude. Here there are other problems. The Tar Sands have been written about quite a lot, with the Premier of Alberta in particular trying to secure more investment for his province with some lofty predictions about Alberta being the new Saudi Arabia. The problem with Tar Sands is that as much oil as there is, it isn't a way of producing oil in large volumes - Alberta currently produces about 600,000 barrels of synthetic crude per day from the tar sands, or 1/170th of world production. This is after several billion dollars worth of investment.

The other problem with the Tar Sands is that it currently takes more energy to make Tar Sands oil then the oil actually produces - and the currently "profitable" prices for synthetic crude were entirely dependent on cheap natural gas - cheap natural gas that no longer exists in North America. It is seriously questionable whether we will ever get more oil out of the tar sands then we do now. Tar Sands optimists need to show either a) where the new natural gas is coming from, or b) what new processes will be used to make the synthetic crude. Even with these challenges, oil optimists predict that Alberta will make roughly 3 million barrels of synthetic crude by 2020. Hardly enough to stave off disaster.

Another potential source of oil is coal. Using chemistry that dates back to the interwar period, it is possible to convert coal (as well as natural gas) to synthetic crude. This chemistry, known as the Fisher-Tropsch process, has a long history and is well-understood. But there's two points to make here. First, F-T chemistry has historically only been used by regimes that had no other choice - Nazi Germany and Apartheid South Africa being most notable. The fact that it's being talked about seriously is a sign of desperation, not progress. Secondly, while coal reserves are big, they're not nearly big enough - as we saw earlier, if coal has to support both oil and natural gas consumption, it won't last more than three decades.

So that's it, really - there's no way that oil is going to outlast the next three decades, at least not at close to the current level of production. So we need to look at non-oil substitutes. How do we kick the habit?

Well, the hardest thing to say is that, in all likelihood, the market will take care of the problem for us - but not the way the optimists usually predict. Rather, we're going to see a lot of "demand destruction" in the next few decades - code words for recessions. People who can't afford to drive, won't. Currently, American consumers are putting more and more of their gas purchases on credit cards - a really bad sign. In the next few years, we're going to see a lot of people either give up their cars or give up on other purchases to maintain those cars. Look for declining consumer spending as gas prices head up.

After recession, the only thing that can make a serious dent in our oil consumption quickly is getting people out of cars. This may very well mean forcing people out of cars, and in to mass transit. And I do mean force. The reason for something so seemingly draconian is simple - light vehicles (cars, minivans and SUVs) make up half of US oil demand. So the largest gains are in getting people out of their cars - and conversely, attacking other uses of oil while ignoring light vehicles is really just nibbling at the edges. Unfortunately, increased fuel efficiency simply can't reduce demand quickly enough to deal with peak oil. Any number of studies have shown that, even with the most optimistic predictions, increased efficiency at best holds US consumption level. This is insufficient in a world where oil supplies are contracting. We need to get people off out of their cars entirely. They might even thank us for it - they'd have more money in their pockets, after all was said and done.

Aside from transportation, the other sector that is most vulnerable to oil prices is agriculture. Here, the solution is relatively simple - go organic. Given that organic farming is already spreading at double-digit rates and can now deliver yields within 10% of conventional farming - albeit at higher prices - this is something that almost makes too much sense to ignore. As oil prices climb, we'll see conventionally-farmed food become less competitive with organic food, simply because organic food doesn't require the assorted oil-based fertilizers, pesticides, other inputs. Organic food will obviously still have to be brought to your local store, so I wouldn't bet on Canadians seeing a lot of fresh Mexican fruit in the winter for a while - it will simply be too expensive.

I've focused on these two sectors because a) they're the most immediately affected by oil prices, and b) they're the ones closest to consumers. But peak oil will send shockwaves throughout the economy. Going organic and getting on the bus is a beginning, but we need a long-term plan to get off of oil entirely. For that, we need to deal with the other stores at our intersection - Glowing Hot, Bright & Breezy, and the herbal remedy coop. We need to figure out what won't work, what will, and start building towards what will, now. Predicting the future is dangerous business, but in the next few posts I want to try and show why nuclear and hydrogen are dangerous diversions, and why the future will likely be either biofueled or electric.