Introducing Peak Oil

Before we bought a house, we would often head into town on Thursday nights, and browse the Borders bookstore, possibly followed up with a late night coffee at the Mezze Bar. (I never did get into clubbing.) Now that we have a mortgage, we spend Thursdays down at the library, with a hot thermos of coffee instead. (kidding about the thermos part)

It turns out my preconceptions of libraries being old fusty buildings with no book newer than five years was incorrect.

The Auckland City Library has an extensive range of material, including all the Borders books I’d added to my mental wish-list in years gone by. Not only that but it also tends to have a more extensive non-fiction range. And of course you can take out any number of books and magazines for free.

My latest research hobby has been learning about peak oil. The library has not let me down.

Peak oil is the global maximum production capacity of oil. Eventually oil producers will no longer be able to keep up with demand, reaching maximum output rates, and, because oil is a limited resource, producers will be unable sustain production at this rate, and their output will steadily decline as reserves are depleted.

However, hitting peak oil does not mean the end of oil. On the contrary, there may still be many decades, or even centuries of oil production left, but it will become increasingly difficult to extract causing production rates to fall, and end costs to rise.

Currently, the world is consuming 83 million barrels, or 13 billion litres of oil each day. (That’s the equivalent of smothering the entire area of New Zealand 5cm deep in oil, every day, or leaving your kitchen tap running for over 2000 years. At that same daily consumption it would empty a field the size of Lake Rotorua, the North Island’s second largest lake in two months.)

Calculating peak oil is difficult, because it has to take into account new oil discoveries, as yet undiscovered fields, and uncertainty in current reserve estimates, as well as the different grades of oil and ease at which it can be extracted.

Of course, as is characteristic of human behavior, we’ve drilled the best, and easiest to access oil fields first.

The most desirable type of oil, and commonly quoted in the NYMEX exchange, is light sweet crude oil. Light oil is of a lower density and produces a higher yield of gasoline, while sweet oil contains less than 0.5% sulphur, meaning it can be refined by a simple cracking process.

Sour crude, or heavy (sour) crude has a higher sulphur content, requiring a more complex refining process, with higher production and environmental costs as well as producing lower yields. Most refineries are built to process light sweet crude only.

There is considerable evidence to suggest the world hit peak production of light sweet oil in 2005. This takes into account new oil discoveries. In fact the rate of new oil discoveries peaked in 1960, and in the last 30 years the rate of new oil discoveries has not kept up with the increase in demand. Furthermore, what has been discovered since 1970 tends to be of lower quality, and more difficult to extract.

This issue is further exacerbated by the rapid economic development of countries such as China and India, causing demand to continue to rise. Eventually supply will not be able to keep up. And as we head down the other side of the peak, we will start experiencing chronic shortages.

Unfortunately the implications of this are more dire than just a 10% price increase at the petrol pump on our way to work. The first-world economy is driven by oil. For every calorie of food we consume, it takes 10 calories of oil to produce it.

Currently there is a direct correlation between the supply of oil and global GDP. If there is a shortage, this will cause a drop in world GDP, which in turn will bring about a global recession or even depression.

This is a very real issue. The reason petrol prices are now at an all time high is not because of government taxes and Middle Eastern politics (although both have contributed), it is because OPEC is now no longer able to regulate price with a simple supply and demand model. (Note, this disputes some news reports that quote OPEC and various oil producers stating there is “excess supply, and countries such as Algeria are unable to find buyers for their oil”. What these stories fail to mention, is that this ‘surplus’ is actually heavy crude, or heavy sour crude, not the good stuff that the world really, really wants.)

George Bush urging Saudia Arabia to increase production to ease rising global prices won’t help.

Now, some people will argue that it’s no big deal if the oil fields in Saudia Arabia dry up, because there’s still plenty more oil in Antarctica, the Arctic, North Dakota, and the Tar Sands in Canada. This is a an erroneous argument for any number of reasons. For starters, the giant (light sweet) oil fields in Saudia Arabia comprise only 0.03% of all the world’s oil fields, but account for nearly 50% of the world’s production.

If Saudia Arabia has in fact hit peak oil (which appears to be the case), then the world as we know it is about to dramatically change.

And despite all this, Transit just announced plans for building a $2.3 billion motorway tunnel through Mt Roskill, which will take at least 10 – 15 years to build. <sigh/>

Oil is a limited resource and it surprises me that governments still give this so little attention.

As I observe the end price of petrol at the pump continue to rise almost every week, I’m finding it increasingly difficult to justify buying that Mini Leyland.

Within our lifetime oil will no longer be cheap and plentiful. We need to start investing in alternate sources of energy and reducing our dependency on those ancient fossil fuels.

At least, by giving up my car, and living within walking distance to work, I feel I’ve made a start.


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4 Responses to Introducing Peak Oil

  1. David says:

    We’ll be able to drive our genetically engineered, bio-fuel powered Future-Cars through the tunnel.

    (artists impression of a Future Car)

  2. Simon says:

    Silly girl, buy the car now while there is still oil available to enjoy it!

  3. Pingback: The Undecided Voter » Ramblings from Eden Terrace

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