Lentis/Peak Oil

Peak oil is an event based on the theory of M. King Hubbert. It focuses on predicting when the supply of oil will run out. This chapter explores this theory by focusing on the general debate, the relationship between participants, and the conclusions and lessons drawn from such analysis. With the threat of oil supply dwindling, this chapter also explores alternative resources and the benefits and drawbacks of such.

Introduction

What is Peak Oil?

Peak oil states that the extraction of petroleum cannot match the growing oil demand, and will reach its maximum rate at a given point of time. After that point, the rate of petroleum extraction will decrease. The demand for oil increased by 15% from 2000 to 2011, and will likely reach a global demand of 42,500 million barrels per year in 2030.

The debate of peak oil focuses on when the petroleum extraction rate will reach its maximum. There are two major groups in such debate: early peak advocates and late peak advocates.

Early peak advocates suggest that the peak will happen very soon. M. King Hubbert is a famous early peak advocate who predicted that US oil production will peak in 1970 and global oil production will peak in 1995. While Hubbert was close in his prediction of US oil (happened in 1971), he was way off in his prediction of global oil (still hasn't happened). Yet, there are still many researchers who believe that oil will peak in the next few years. Many observers such as Klare and Sebrowski observed a decline in large new discoveries of oil and argue that the world isn't doing enough to discover new sources.

Late peak advocates suggest that the peak will happen much later, or not at all. Their argument is that early peak advocates haven't taken into account two major factors: price effects on demand and technology. If supply of a good decreases, the price increases due to scarcity. Furthermore, the increase in price decreases the demand for the product. Hubbert didn't take this factor into account in his theory; he assumed that the demand would increase at a consistent rate. Technological advancements have found new sources of energy, therefore contradicting early peak advocates' belief that new sources aren't found. While such sources have very low efficiency, late peak advocates urge to counter this by investing more in technology development. They believe this can be done quicker than the peak of oil.

New Oil and Alternative Energy Resources

Rather than the current process of extracting petroleum, scientists are researching new ways to harness energy. One way is unconventional petroleum deposits, which extract petroleum through methods other than oil well usage. Below are examples of such resources that contain petroleum.

• Shale
• Oil Sands

Another option is alternative energy sources. Scientists are looking for different ways to be less dependent on petroleum. There are two categories: renewable and nonrenewable. Renewable resources will never run out of supply and are naturally replenished. Below are examples of such.

• Wind
• Sunlight
• Water

Nonrenewable resources do not renew themselves at a sufficient rate, so the supply can run out. Coal and petroleum are examples, but there are others listed below that could replace global dependence on such.

• Nuclear
• Biofuels

While there are various options, early peak advocates argue that they will not replace petroleum as the main energy source. Aside from being inefficient, such technology to harness these resources are very expensive to make. This drives up the price for energy from such sources, making it cheaper to use petroleum. In addition, early peak advocates argue that late peak advocates do not take into account political and environmental factors. In politics, the world fears that unstable countries can use nuclear energy for harmful actions. Iran claims to invest in nuclear energy solely for alternative sources, but other countries are not willing to grant permission to do so simply because of Iran's strenuous relationships with USA and other major countries. In environment, some activists fear that using biofuels can encourage deforestation. By extracting fuels from specific crops, companies can tear down various lands to plant such crops. Deforestation can harm habitats and drive extinction rates for various species.

Peak Oil Participants

OPEC

The Organization of Petroleum Exporting Countries (OPEC) cares about the peak oil debate. They are a collection of countries with large proven oil reserves that coordinate production to control prices. Their goal is to keep prices high and stable. Because of their control over a large portion of global production, OPEC has geopolitical bargaining power through oil embargo. OPEC has reported their oil reserves are plentiful, suggesting peak oil is not in the foreseeable future. In reporting high supply, OPEC is encouraging high demand, to sustain their high earnings. High demand is essential in preventing an oil glut like the one in the 1980s. After prices soared during the 1973 oil embargo and the Iranian Revolution of 1979, demand fell and prices collapsed with oil surplus.

Nominal and real oil prcies from 1968 to 2006.

Energy Companies

Energy companies, such as Exxon Mobil, Shell, and BP have a stake in the peak oil debate. Similar to OPEC, energy companies want to improve supply and preserve high demand. Companies like BP are investing in new techniques to produce oil from unconventional sources, like oil sands or shale oil. One such technique, hydraulic fracturing, or fracking, improves production but has raised concerns from environmental groups. These new techniques are expensive, but may prove profitable if oil prices rise in future scarcity. Technology may also improve, lowering costs.

Governments

Governments care about the peak oil debate. Oil is critical for the operation of most industrial economies. In the United States petroleum resources accounted for approximately 35% of national energy usage. If a country relies on imports, oil becomes a national security risk. The question of future oil availability guides energy policy. In 2005 the United States released the Hirsch Report, which gave a plan to use new technology as mitigation to extract unconventional oil resources.

Environmental Organizations

Environmental organizations, like Greenpeace, argue peak oil should prompt alternative energy solutions. Greenpeace sees peak oil as a threat, and views consumption patterns as the problem. With better community design to minimize consumption, oil reliance will decline. The vision involves communities that preserve farmland, community space, public transportation, recycling, and productive urban spaces. Greenpeace is an early peak advocate, and do not see unconventional oil as part of the solution.

Alternative Energy Companies

Alternative energy companies take a market approach to peak oil. Companies can capitalize on oil’s scarcity and create products that harness alternative energy sources. One such example is Tesla Motors, an electric car manufacturer. They market their cars as satisfying to drive, but also environmentally conscious. In a customer interview, the customer reported “people understand the importance of environmental issues.” Tesla Motors creates cars ready for a world after peak oil, and filling that marketplace niche.

Establishing the Root of the Problem

The reason that the peak oil debate is so controversial is because there are many variables that must be taken into account when determining the point in time in which the peak in oil has occurred or will occur. Resource depletion issues in general are both important and controversial because of the immense dependence on many different resources, such as oil.

Case Study: Marine Fisheries

Another controversial example of resource consumption is overfishing and the depletion of marine fisheries. Public perception is generally that marine fisheries are in crisis and have been for some time, but some researchers say that this is incorrect. Marine fisheries are an important source of food and are vital to the economy, so understanding the trend is of similar importance to peak oil.

William Stanley Jevons

Jevons Paradox

Establishing the state of the peak oil debate is important, but it is imperative to determine the root of this issue in order to find a solution. An English economist and logician named William Stanley Jevons established a phenomenon called the Jevons Paradox that can adequately describe the underlying issue of the peak oil debate, which is increased oil consumption. The paradox states that increasing the efficiency of a resource usage tends to increase the consumption of that resource due to the resource being more cost effective. Jevons created this paradox when studying the rise in consumption of coal as the efficiency of the steam engine increased. Similarly, Jevons Paradox could attribute the rise in oil consumption to the increases in efficiency of the internal combustion engine.

Generalizable Lesson and Conclusion

Finding a solution to combat Jevons Paradox involves analyzing the social interface of technology. The Paradox results in the fact that a purely technical approach is being taken when attempting to solve issues regarding energy usage. Perhaps a socially oriented solution would be more effective. An example of a successful socially oriented solution was the Cool Biz campaign implemented in Japan in 2005. The purpose of the campaign was to reduce energy consumption by curtailing air conditioning usage. In order to deal with the increased temperatures in the offices, Japanese employees shifted from the standard stuffy business attire to a more relaxed and casual dress code. The campaign was deemed successful as the first year resulted in a 460,000-ton reduction in CO2 emissions, about the same amount of power used in a month by one million households. From this example, a generalizable lesson is derived: In order to avoid succumbing to Jevons Paradox when reducing energy consumption, a socially oriented approach must be taken.

It would be very difficult to implement a social solution to combat oil consumption because of the immense dependence on the resource worldwide. One movement that is gaining momentum is carsharing, or renting cars for short periods of time. With the addition of plug-in hybrid vehicles to the fleets of carsharing companies, the oil consumption can be greatly reduced. While the reduction in consumption is miniscule relative to other sources of oil usage, if more similar movements can be adopted in the near future then dealing with the peak in oil will be much more manageable.