Per Capita Peak Oil Was In 1980?

Is what really matters to global oil prices peak oil? We may be on the brink of this now globally (it has been reached by many individual producers long ago), but it may be in the near to decade or two future depending upon who you talk to if we haven't reached it.

Or, is what really matters per capita peak oil? This arguably happened around 1980, and is only going to reverse if the global population starts growing more slowly than oil output, raising the bar for the oil industry to keep up.

I suspect that the number of people who live in industrialized economies or post-industrial economies is what really matters. Population growth in these economies is generically lower than global population growth rates, but it is growing because this is a function not just of natural increase, but also of economic development which is in two steps forward and one step back fashion gradually spreading to larger and larger parts of the economy.  Since economic development is harder to predict than population growth, the trendline is harder to predict.  Still, both population growth in the existing industrial and post-industrial world as a whole is probably positive for the foreseeable future and economic development is also likely to be more than zero, so oil prices are likely to have more demand pressure in the future as well as more supply pressure in the future.  Hence, the measure of oil demand relative to supply that matters to global oil prices is likely to hit before peak oil does (if it hasn't hit already) and still sets a higher bar for oil produces to meet in terms of new production to keep oil prices moderated.

Equally important to this dynamic, of course, is that cheap oil may make economic development easier and cause the number of nations or subnational areas that are industrialized to grow more rapidly. But, peak oil driven price increases for oil may slow the industrialization phase of economic development. Thus, projecting future oil prices as a result of predictable supply and demand factors has self-interacting components.

The biggest wildcard is breakthough technology.  New oil exploration and extraction technology could provide downward price bumps.  But, the real game changing issue is whether technologies with a big impact on oil consumption take hold. 

In practical terms this means mass conversion from gasoline and diesel powered vehicles to alternative fuel vehicles like electric cars, or dramatic increases in fuel efficiency from developments like plug-in hybrid vehicles and increased public transportation usage (particularly involving bus usage).  Electric and plug-in hybrid vehicles of one sort or another are probably the only way that global oil demand can drop enough to counteract the long term price pressures that oil faces from an increasingly large industrialized world population and stagnating long term oil production as economically extractable supplies are exhausted.  Transportation is the dominant source of oil demand in the industrialized world that otherwise gets its energy from other sources as environmental and price factors have made oil based fuels less attractive for uses where alternative energy sources are technologically viable.  So these technologies have the dominant impact on oil demand per person in the industrialized world.

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Will The Oil Age Be A Brief Historical Blip?

You don't have to be a die hard Peak Oil purist to agree with the gist of the implications of the graph above, posted at an NPR blog and based on an original presentation slide by Stephen Mayfield.

As noted by Wikipedia on Peak Oil:

Optimistic estimations of peak production forecast the global decline will begin by 2020 or later, and assume major investments in alternatives will occur before a crisis, without requiring major changes in the lifestyle of heavily oil-consuming nations. . . . Pessimistic predictions of future oil production operate on the thesis that either the peak has already occurred, that oil production is on the cusp of the peak, or that it will occur shortly. The International Energy Agency (IEA) says production of conventional crude oil peaked in 2006.

Peak oil production in the United States hit in 1970, but was pretty much irrelevant because oil trades in a world market. The U.S. has been a net oil importer since the early 1990s.

The United States isn't the only country in the world that has hit a localized peak in oil production as the illustration below from Wikipedia illustrates:

Some localized peak oil predictions are right around the corner: Iraq: 2018, Kuwait: 2013, and Saudi Arabia: 2014. In my grandchildren's world, most of the Middle Eastern oil powers will have greatly diminished oil wealth.

Whether peak oil is almost upon us or is, very optimistically (e.g. in the opinion of the most optimistic oil industry experts), a century out, in the big picture, the message is basically the same viewed through a long historical lens (and one could reasonably extend the chart above all the way back to 8,000 BCE when agriculture was begun for an even longer run historical perspective).

Most of the optimistic predictions assume that much of the new high cost oil production will come from "unconventional sources such as heavy crude oil, oil sands, and oil shale" that are made more attractive at higher oil prices. Even the optimists aren't predicting a sustained return to an era of oil prices of less than $40 per barrel (in 2008 dollars), and often half that, seen from roughly 1877 to 1972 and again from about 1986 to 2003. Instead, they predict a continued flow of increasingly expensive oil for a very long time. The current price for barrel of oil is about $100 which translates into gasoline prices of a bit under $4 a gallon at the pump in Colorado.

We learned how to make oil powered machines and oil based materials, we drilled and extracted vast amounts of easily available petroleum, and we very rapidly have burned through much of this non-renewable resource and continue to do so without seriously reducing our consumption of it. This use pattern has lasted about a century, and maybe it can last another, but it isn't sustainable.

For an oil economy to be sustainable, it needs to use biofuels or oil obtained from converting coal to a petroleum-like liquid fuel (such as the fuel produced in the Fischer–Tropsch process used by Germany and Japan during World War II). Rentech, Inc. has a proto-type plant in Commerce City, Colorado that produces about 10 barrels of fuels per day using the process from natural gas, and half a dozen other operations produce liquid fuels from natural gas or biomass using the process as well. There are a few small operations in the U.S., including one in Pennsylvania, that do small scale conversions from "waste coal" but only one Sasol plant in South Africa (which is coal rich, but oil poor) currently makes petroleum-like fuels from a combination of coal and natural gas on a large scale commercial basis using the technique.

You can extract more petroleum from deep wells, oil shale and the like, but this approach inevitably is still going to produce diminishing oil reserve growth and higher extraction costs. These options can bend the peak oil curve forward a little, but once the cost of extraction exceeds the cost of producing biofuels or converting coal or using other alternatives to oil (like fuel cell and battery powered vehicles), the technological capacity to extract more petroleum becomes irrelevant. The bottom line is that they aren't making any more new oil, so sooner or later, we're going to run out if we keep consuming it at a high rate as a core basis of our technological culture. Moreover, there is no more oil anywhere else in the solar system, since no place but Earth has ever had the biomass that broke down to produce petroleum.

The good news is that this imposes a natural limit on the amount of global warming inducing pollutants that combustion of petroleum can produce. And, petroleum consumption is the harder fossil fuel to refrain from using without being forced by resource constraints to do so, because it has fewer good substitutes. Our demand for coal is currently almost exclusively for electricity production, and that has easier substitutes that require innovation only by large, sophisticated electrical utilities, not by average people whose electricity consumption experience is unchanged by the fuel used to produce it.

The bad news is that to the extent that our standard of living is a product of cheap energy from petroleum, the future could bring real hardship as this one time economic boost is no longer available. Economists have attempted to estimate that impact, but given the uncertainties of technological developments and the inseparability of oil from our current economy's functioning, the efforts are speculative at best.

An economy based on cheap oil may be as transient as the brief period in the history of the Americas and of Australia when there was a brief burst of abundance arising from megafauna hunting until those fauna went extinct.

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Twenty Obvious International Trends

Lots of economic, environmental and political predictions are hardly better than horoscopes. Others are reliable enough to be thought of a "fundamentals." I'm more interested in the latter. Here are a few:

1. China's economic growth rate will be greater for medium term time periods (e.g. three years or more) than that of the United States for the foreseeable future, because it is engaged in "catch up growth," while the United States is not.

2. China will experience a notable economic crash in the next decade or so, because it hasn't had one for a long time and periods of even strong sustained growth are almost always interrupted periodically by economic crashes.

3. India's economic growth rate will be greater for medium term time periods than that of the United States for the foreseeable future, because it is engaged in "catch up growth," while the United States is not.

4. India's economic growth rate will exceed that of China sometime in the next ten to fifteen years, because China's per capita GDP is significantly greater than that of India, leaving India with more "catch up growth" potential than China.

5. Oil dependent nations in the Middle East will each experience serious economic contractions not long as oil production in the nation in question starts to fall due to exhaustion of the nation's oil supply. These nations are heavily reliant on oil revenues to sustain their standard of living with imported goods and temporary immigrant workers, both of which will be harder to come by when there are not new oil revenues available.

6. Countries in Africa that experience war and authoritarian governments will experience less economic growth than those with sustained periods of peace and democratic government.

7. In the developing world, it will be a long time before environmental and climate change concerns have enough political clout to cause air pollution to be reduced more rapidly than the increasing scope of economic activity increases air pollution. As a result, emissions will not be reduced rapidly enough to stop continued global warming.

8. Nuclear power will spread to more countries.

9. Oil more be more expensive in real terms in 2020 and more expensive again in real terms in 2030 than it is today. Rising oil prices will make technologies that are powered by energy sources other than oil more attractive. This trend will be a global one, because oil trades in a global marketplace.

10. Oil rich countries that are not close to exhausting their reserves will receive an economic boost from rising oil prices.

11. North Korea's political and economic system will collapse, probably within a couple of decades, if it fails to open itself up to the rest of the world. If it does collapse, it will probably be reabsorbed by South Korea.

12. Public health measures will improve in most of the developing and undeveloped world that are not war torn as patents on new effective drugs expire and make those drugs more affordable.

13. Global fertility rates will fall as more countries become more economically developed.

14. Developing countries will become less religious as they become more economically developed in fairly close synch with falling fertility rates.

15. The need to impose taxes as oil revenues decline will force Middle Eastern monarchs who have not already been deposed in revolutions and democratized of their own free will to make genuine democratic reforms.

16. The proportion of the world population engaged in farming will fall steadily for decades to come.

17. Some small island nations will be swallowed up by the sea and forced to relocate all or most of their populations as sea levels rise with global warming sometime in the next century.

18. A large share of the world's languages, probably half or more, will die in the next few decades.

19. A significant number of plant and animal species will go extinct in the next few decades.

20. The proportion of Africans who are Christians will increase significantly over the next decade.

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