Change is Upon Us, Part 2: Peak Oil

Peak Oil. You may have heard of this term before, as it’s been slowly creeping into mainstream consciousness over the past 10 years or so. The concept, although not difficult to understand, is still often poorly understood, often due to it being misrepresented by those who have a continuing vested interest in denying that peak oil is happening.

At the top of that list used to be the IEA (International Energy Agency), which is an international body established by the OECD (Organization for Economic Co-Operation and Development), which is itself an international body comprised of member nations “committed to democracy and the market economy”. If you think of the OECD as a group of like-minded bankers, firmly committed to the status quo, you won’t be far off. The point is that both the OECD and the IEA do not operate under the United Nations; they exist for the benefit of member nations, which tend to be those with strong economies and western democratic ideals.

Prior to just a few weeks ago, the IEA pretended to have never heard of the concept of Peak Oil. You see, every year the IEA publishes its World Energy Outlook report, which in part assesses proven reserves of oil, and looks ahead to what we can expect in the next several decades based on current information.

There has long been suggestions out there that the IEA has suppressed data, and has therefore tended to paint a much rosier picture of the world’s energy reserves than what actually exists. Some have suggested that they have done so under pressure from large nations, such as the United States, who have intervened out of fears that if the true picture began to emerge, there would be widespread concern amongst the populace. Whether this is true or not (or whether data is manipulated due to oil producing nations over-stating their proven reserves), the fact is that the IEA’s oil outlook has always been pretty optimistic.

As a result, you’ve probably heard the Big Oil Executives tell you through the media that the world isn’t running out of oil and that there’s nothing to worry about. Those that suggest otherwise are just fear-mongers, or are using “peak oil” to advance their own (often “socialist” or “environmentalist”) agendas. Either way, everything is fine, go to sleep and don’t worry about the future.

Well, a couple of weeks ago the IEA released its 2010 World Energy Outlook, and guess what? For the first time, the IEA started talking about Peak Oil. Not only did the IEA acknowledge that there is such a thing as Peak Oil, they went further and said, “Guess what? We’ve already passed the peak, back in 2005 or 2006.”

The Big Oil Execs are right about one thing, though: the world isn’t running out of oil. Every time they trot that argument out in an attempt to deny the existence of peak oil, you need to understand that their argument is irrelevant. The world isn’t running out of oil. What we are running out of is cheap oil.

Think of oil this way: when we first started extracting oil, about 100 years ago, for every barrel of oil used to power extraction, 17 barrels of new oil were produced. That was a 17:1 ratio. Today, the ration has fallen to something closer to 6:1. Why has this happened? It’s because we’ve already exploited all of the easily accessible oil, and we’re now having to spend more money (and energy) on extracting oil in places which are harder to get to, such as on continental shelves or in deep waters like the Gulf of Mexico.

We’re also increasing supplies from unconventional sources, such as the Alberta Tar Sands, where the ratio of return is estimated at being closer to 3:1.

So, there is still a lot of oil left in the ground, but unfortunately it’s the stuff which is harder to get to. However, since demand for oil remains strong, and is in fact increasing significantly year by year, we have little choice but to turn to more expensive sources.

Demand for more oil will continue to drive extraction. For our market economy to function, it must continue to grow. Unfortunately for us, what powers are market economy are fossil fuels, especially oil. Fossil fuels are non-renewable resources, which means that they can be depleted. As depletion occurs, the resource becomes more scarce, and the price trends upwards. Those who can continue to pay the higher price do so, and continue to prosper, albeit at smaller profit margins. Those who can’t afford to pay the price lose out, go out of business, and stop doing whatever it was they were doing, such as producing a particular product and employing a certain number of people to make it.

So think about that for a moment. Our whole economy is structured on the notion that growth must occur. That’s why economists and politicians like to talk about economic growth as being necessary, and “negative growth” as being a threat. However, what is fuelling our economic growth is something which is getting increasingly expensive to produce. Looks like we’re in for a bit of a rough ride as everything will get more expensive, right?

Well, actually, it could get worse than that. You may have learned in Economics 101 that if demand goes up, so do prices, but usually this is only temporary, as more supply will eventually arrive on the market to meet demand. Sometimes this referred to as the Law of Supply and Demand, as if it were some high and might scientific principle applicable to all market situations.
Unfortunately, what Peak Oil is all about is confounding the “Law” of Supply and Demand. While demand for oil will continue to increase, the world’s ability to supply oil to meet demands isn’t going to happen, because we will produce less oil, due to the increasing costs associated with unconventional sources. Even today, in 2010, the world is not producing as much oil as we did in 2005, which goes against the previous 100 year trend.

The impacts which Peak Oil are likely to have on our lives are uncertain, and there are many contradictory assessments which are out there. Clearly, though, there is going to come a time in the near future when those who can afford higher prices are going to be separated from those who can’t afford them, and this is going to be a game changer.

On the surface, the concept of Peak Oil has little to do with climate change. Certainly, a changing climate has nothing to do with how little oil we have left in the ground after extraction. However, the overlap between climate change and peak oil occur when we go looking for solutions.

Burning oil contributes to climate change. Burning oil will become more expensive in the coming years. What we need to find is a new source of energy which won’t contribute to climate change, and which can ultimately begin to replace oil. The process of doing this is sometimes referred to as “Decarbonizing” our economy. It sounds like it might not be so hard to do, as we are already aware of many alternative, renewable sources of energy. The reality is, it’s going to be the biggest undertaking in the history of humanity.

The first step forward to address peak oil and climate change will be to begin having conversations at all levels about what we can do, as individuals, business owners, corporations and governments. We must acknowledge that the problems exist, and tune out those who deny these realities, identifying them for the obstructions to progress that they are. This won’t be easy, as international corporate elites have a lot of money invested in our current market economy, and they have shown time and again that they won't let facts get in the way of their agenda.

Peak oil and climate change are two issues we need to start figuring out solutions for. The solutions are out there, but they are going to be transformative for us should we implement them. If we don't implement solutions of our own choosing, well, other solutions will be imposed on us, because change is happening. Tomorrow will not be the same as today, that's clear.