Industry response to peak oil not enough long term

By Robert and Sonia Vogl
President and Vice President, West_Texas_PumpjackIllinois Renewable Energy Association

We were asked recently if peak oil remains an issue. Just as cold weather stimulates doubt regarding climate change the current low price of oil stimulates doubt about peak conventional oil. Such short-term anomalies confuse the public and bring out a new round of denials regarding the existence of these long-term trends.

Researchers documenting peak conventional oil provide data indicating it occurred around 2005. Since then the production of conventional oil has been virtually flat. The dramatic increase in the production of oil shale in the United States obscured recognition of the long term implications of the drop in conventional oil supplies.

As major independent oil companies such as Exxon Mobil and Shell spent more money on developing new sources of oil the actual amount of oil secured per capital expenditure declined. In response, oil companies cut back on expenditures and sold off part of their assets in order to pay down debt and pay dividends.

This trend of rising costs to secure new oil supplies is also true for countries which own their oil supplies. With declining revenues the countries will have less money for social expenditures necessary for the needs of their citizens.

Rather than sell their oil into global markets, some of them have developed bilateral agreements which direct the oil to their partners. China has developed such agreements with Saudi Arabia and Russia which bypass the major independent oil companies. National oil companies are also using more of their oil internally to meet the needs of their own citizens.

With the high cost of oil consumers began to resist the higher prices. Oil consumption in the United States fell as young people in the 18 to 39 age range were driving less. Their unemployment represented 80% of the reason for less driving, according to a study by Michael Sivek.

The rise in U.S. oil production was hailed as our having the potential of our becoming energy independent. As our production rose Saudi Arabia chose to hold their production at existing levels producing a global oil glut that collapsed the price of oil.

The low cost of oil will further slow the effort to find and develop new sources of oil. When combined with the higher cost of finding new sources, it suggests the price of oil will again rise.

What is happening with oil supplies and prices is consistent with what was predicted with the arrival of the peak in conventional oil.  Now that oil prices have collapsed, consumption is expected to increase leading to higher prices which reach a point where consumers cut back on consumption.

As pointed out in the book, “The World After Cheap Oil,” without cheap oil the global economy in its current form would no longer exist. Yet there is very little discussion regarding the implications of peaking conventional oil as it is assumed that the massive resources in oil sands, oil shale and shale oil will be sufficient to meet our needs well into the future if we ignore the adverse environmental impacts of their development.

Drs. Robert and Sonia Vogl can be reached via e-mail at sonia@essex1.com.

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