Civilization as we know it will come to an end sometime in this century, when the fuel runs out.

—David Goodstein, Professor of Physics, Caltech

The peak-oil theory combines serious geology with pop economics to “envision a dying civilization, the landscape littered with rusting hulks of useless SUVs,” as Caltech professor David Goodstein describes it in his book Out of Gas. The most popular leaders of this movement also envision a massive “die-off” of the world’s population, along with the end of industrial civilization.

The theory is fairly simple. There is only so much oil worth pumping out of the ground, and once that is half gone, the rate of pumping will reach an all-time production peak and start to decline. The peak will herald the beginning of an “earth-shattering crisis,” as one author puts it. The world economy and, most likely, the world’s population will decline right in step with oil production. According to peak-oil charts, the oil is almost half gone.

Goodstein, a physicist, says that “until the 1950s, oil geologists [believed] that the same rate of increase [in oil production] could continue forever.” And geologists say that economists think this still. But I can find no evidence that anyone has ever believed in limitless oil. Back in the 1800s, a famous economist named William Stanley Jevons predicted peak coal in England far too early. And patent-medicine salesmen, hocking “rock-oil” remedies, predicted peak oil just before Edwin L. Drake drilled the first oil well in Pennsylvania. (Before then, people got oil from natural seeps.)

Starting in 1979, the Mad Max film trilogy painted a bleak and violent picture of a world plagued by oil shortages that cause a nuclear war. Since then, predictions of a similarly grim economic future have become attached to peak-oil theory.

Peak-oil geology has fascinated me since 1998, when I read a Scientific American article by two leading peak-oil geologists. Pursuing the topic more recently, I found its basic tenets showing up in mainstream arguments over U.S. energy policy. One such policy—that the U.S. military is to achieve “energy independence” through subsidies for liquid fuels derived from coal—is backed by the departments of Energy, Defense, and the Interior.

As with the idea that we will “wreck the economy,” which I discussed in chapter 1, fear of peak-oil is counterproductive. Peak-oil scare tactics aid in the push for liquid coal and synfuel. Worse still, overblown claims of economic collapse have led, naturally enough, to the erroneous conclusion that peak oil will solve the climate-change problem. This makes it easier to accept the push for liquid coal.

Peak-Oil Theory

In 1956, oil geologist M. King Hubbert predicted that U.S. oil production would peak between 1965 and 1972. It peaked in 1970. He also predicted that world oil production would peak between 1995 and 2000. He did not, however, predict an earth-shattering economic crisis at the peak. Experts base their predictions of peak production on graphs of historical production rates and clever extrapolations. These techniques involve neither geology nor economics and are easy to understand. For example, just read geologist Kenneth S. Deffeyes’s fascinating book Beyond Oil.

More recently, peak-oil enthusiasts have added the Mad Max-flavored economic collapse to Hubbert’s sober theory of peak oil. The collapse is most clearly explained by electrical engineer Richard C. Duncan, one of the most popular peak-oil proponents on the Web (Google reports that 450,000 Web pages refer to him). He claims the “world population will decline to about two billion circa 2050.” Since the world’s population is currently over 6 billion, that would mean over 4 billion deaths—over sixty times more than were killed in World War II.

C. J. Campbell, a petroleum geologist and the leading peak-oil expert, also believes world population will fall to “pre-Oil Age levels,” which would imply even more deaths. Richard Heinberg, the most prolific peak-oil author, tells us this is not “necessarily such a bad thing” because it “just means a return to the normal pattern of human life—life that is in tribes or villages” (see The Peak-Oil ‘Die-Off’ for his full quote).

What Happens After the Peak?

Oil production will certainly peak, and perhaps it already has. But what about the worldwide economic collapse? Is that certain? The world did experience a peak in oil production in 1979, when the Organization of Petroleum Exporting Countries (OPEC) cut production and raised prices. Production declined sharply for four years and did not surpass the 1979 peak again until 1989. This provides a real-world test of the peak-crisis theory.

So what happened when world oil production suddenly stopped rising and started falling in 1979? The world did not shatter; instead, the world outdid OPEC, cutting oil use more than OPEC had intended to cut production. Kenneth S. Deffeyes, the most respectable peak-oil geologist, says we’re now sliding over and down the final oil production peak. By his calculation, the decline in oil production for the first five years, the period he’s worried about, will be considerably less steep than the decline after the 1979 peak.

Deffeyes is a Princeton geologist and, for my money, by far the most interesting of the peak-oil experts. He has nominated November 24, 2005—Thanksgiving of that year—as World Peak Oil Day. Figure 1 shows Deffeyes’s predictions about world oil production. The peak in production centers on 2005, and the graph is based on his “logistic” formula and his value of a 10 percent drop-off by 2019.

Figure 1. The graph aligns the 1979 peak in world oil production with the final peak as predicted by Deffeye’s so the two can be easily compared. As can be seen the peak in 1979 was much sharper than the predicted 2005 peak.

He’s concerned that world demand for oil was growing at almost 2 percent per year before World Peak Oil Day, and that growth will have to stop. With Deffeyes’s prediction of slightly negative growth in production, we would fall behind a full 10 percent in five years. That’s a lot to be short of gasoline.

However, in 1979, the world’s use of oil had been rocketing up more than twice as fast as in recent years. As the “oil trend” line in the graph shows, five years after the 1979 peak, oil supply had fallen 21 percent below its upward trend. So the shortfall after the 1979 peak was more than twice as severe as the shortfall Deffeyes foresees as likely to cause war, famine, and death. So what actually happened in the five years after the 1979 peak?

During that time, when total world oil production and consumption fell 8 percent, world gross domestic product (GDP) grew by 13 percent (see Figure 2). I’m not saying OPEC’s impact was painless, but 13 percent growth in five years is not a calamity. The first few years were tough times—the poor suffered, and the rich were annoyed—but the world economy did not stop growing.

Figure 2. Although the 1979 peak in oil production and consumption was sharp it did not have a catastrophic affect on world economic production. The final peak in oil production will not cause a global economic crisis killing billions, as predicted by a number of peak-oil proponents.

World oil production did not make it back to its 1979 peak until 1989, and in those ten years, world GDP grew 35 percent. Supply reductions tend to send prices soaring, and at first they did. But by 1986, with world supply down 8 percent from its peak, the price of oil was down 70 percent from its peak. How could a drop in supply cause prices to collapse?

Ahmed Zaki Yamani, the Saudi oil minister and a decent economist, foresaw this when he tried to rein in OPEC’s price increases in 1979. He succeeded a bit, but he knew it was not enough. Yamani knew high prices were a two-edged sword. They pried trillions of dollars from the purses of consuming nations. But what the peak-oil proponents deny—and what Yamani understood—was that consumers do not sit idly by and watch this happen. When OPEC’s prices soared, consumers, including businesses, cut demand so much that they more than made up for OPEC’s supply cuts.

In Figure 1, notice the huge gap that opens up, in the 1980s, between the oil-supply trend and the actual supply of oil. This gap is the result of conservation. Conservation punished OPEC’s excesses for decades. Peak-oil geologists may know their oil. But Deffeyes confesses, “I emphatically do not understand economics.” Someday the market will teach him the same lesson it taught OPEC. (See Peak-Oil Economics Unscrambled)

Some might argue that the 1979 and 2005 peaks are fundamentally different. The 1979 peak was not the real peak, since world oil production surpassed 1979 levels ten years later. When the real peak comes, there will be no going back. But knowing that the peak is final will only cause markets to adjust to falling supply more quickly and decisively than they did in 1979.

When Will the World’s Oil Supply Peak?

Wall Street Journal news stories now take seriously the possibility of a 2012 peak in oil production. But prognosticators have a long history of jumping the gun.

In 1919, for example, the director of the U.S. Bureau of Mines predicted that “within the next two to five years the oil fields of this country will reach their maximum production.” In 1943, Secretary of the Interior Harold Ickes published an article referring to U.S. oil production with the title “We’re Running Out of Oil!”

It can be a bit difficult for those of us who are not geologists to believe predictions of an imminent peak because such predictions are in sharp disagreement with the forecasts of the oil industry and government agencies. As Figure 3 shows, the U.S. Department of Energy (DOE), the International Energy Agency (IEA), oil industry consultants and the big international oil companies all say that Deffeyes is quite wrong in his predictions. Deffeyes’s prediction is from his book Beyond Oil.

Figure 3. The National Petroleum Council, in its July 2007 report, Hard Truths, cites four mainstream predictions for oil production in 2030, one each from the U.S. Department of Energy (DOE), the International Energy Agency (IEA), a group of industry consultants, and an average of international oil companies’ predictions. The report also notes that “forecasts almost unanimously predict at least modest growth in conventional oil supply for the next 5 to 10 years.” Deffeyes’s prediction is from his book Beyond Oil.

If most experts believe the peak-oil proponents are wrong, why take the peak-oil proponents seriously at all? (See Predictions, predictions) One reason is that most experts have been wrong of late. Between 2005 and 2007, DOE cut its prediction of the 2010 world oil supply by 4 percent. If DOE’s predictions continue to drop, the 2010 supply will be almost exactly the same as the 2005 supply. Something is changing unexpectedly. In fact, the peak month for world oil output through 2007 was May 2005. Since then, in spite of prices that might have stimulated more production than expected, supply has actually slipped lower. (Nevertheless, see What if the price of oil went to $200?)

Peak-oil geologists suggest that although the oil industry predicts the peak is years away, industry insiders actually know better. In fact, there is one good reason insiders might not want to admit the peak is near. The oil industry remembers what happened to it when the price collapsed in early 1986. The entire oil industry fell on hard times. Exxon’s profits fell almost to zero. The world had partially kicked the oil habit. That’s the last thing a pusher wants to see. And if the addicts knew oil production was about to peak and then decline forever, they might decide to look for a rehabilitation program sooner rather than later.

But perhaps the oil industry has a different angle. What if the industry could find a new but expensive supply of oil? Take, for example, the oil shale that Presidents Ford and Carter wanted to turn into synfuel. Converting coal to oil is another possibility. The United States leads the world in both these resources. “We could be the New Middle East.” Does that sound far-fetched? The words belong to Theodore K. Barna, Assistant Deputy Under Secretary of Defense.

Liquid Coal: The Dark Side of Peak Oil

Peak-oil proponents deny that more oil will be forthcoming at higher prices. But one surefire path leads to more gasoline. Chemists discovered the dirtiest antidote for peak oil eighty years ago: the Fischer-Tropsch process, which turns coal into gasoline.

This is not a theory. This is what powered the German Luftwaffe during World War II, as well as much of South Africa when the United Nations adopted an oil embargo against that country in 1987. In 1938, Germany consumed 44 million barrels of “oil,” of which 10 million was synfuel from coal. By 1943, the country’s synfuel output had reached 36 million barrels per year. Think of it as Germany’s response to peak oil—the country’s own personal peak, which the Allies caused by cutting off Germany’s oil imports.

Of course, chemists and engineers have refined the process over the years. Today, Montana, whose governor has been pushing liquid coal in recent years, could produce gasoline for the equivalent of about $55 per barrel of oil. This has not yet happened because investors are afraid the price of oil will fall back below $55 as soon as they build a coal-to-gasoline plant. In addition, they might have to pay a global warming charge.

The last time oil was this expensive, the price did drop back to $20 a barrel for more than a decade, so the investors’ fears are warranted. But if we truly start running out of oil, the price will never again drop below $55, at least not for long. Then investors will build synfuel plants, just as the Germans did seventy years ago.

Making gasoline is possible, but is there enough coal? Deffeyes assures us that “the world has at least a 300-year supply of coal.” (See Peak Coal? if you are worried about running out of coal.) To his credit, Deffeyes admits that coal will come in as oil runs out. “I hate to say it,” he writes, “but we likely will be forced to choose either increased pollution from coal or doing without a significant portion of our present-day energy supply.” There can be no doubt that between these two, people would choose “increased pollution from coal.” That is why scaring people about running out of oil could be disastrous for climate change.

The Air Force Wants Liquid Coal

On October 22, 2007, an Air Force C-17 Globemaster III took off—not usually a newsworthy event. But the Globemaster is the biggest user of jet fuel in the military, and it was using a 50 percent blend of Fischer-Tropsch fuel.

The flight was a test of whether liquid coal might work for the United States Air Force as it worked for Germany’s air force. It did. The test flight was part of the Assured Fuels Initiative, which the Department of Defense set in motion in 2001. One of the initiative’s objectives is for the Air Force to get half its fuel from domestic sources by 2016. It would take 110,000 barrels per day of domestic fuel to reach this target level. Since the United States currently pumps about 70 times this much domestic oil per day, it would be easy to accomplish this goal without any synfuel program. So what is the real reason for this initiative?

The initiative appears to provide one legitimate benefit: Synthetic fuel should work better across a wider variety of vehicles than standard gasoline, diesel, or jet fuel. But this is unlikely to be an argument that wins support for major new subsidies to Big Oil. Of course, the military might also have in mind reducing the need to defend Middle East oil supplies, but replacing less than 2 percent of imports does not amount to much.

This leaves the fear of a peak-oil crisis as the major lever for gaining public support. And indeed, proponents of this initiative have not hesitated to play that card. “World petroleum supply trends indicate that the days of inexpensive oil may be over,” says a report of the Task Force on Strategic Unconventional Fuels. The Energy Policy Act of 2005 mandated the formation of this task force, and the Secretaries of Energy, Defense, and the Interior implement it. The report continues, “Peaking global production … is already causing competition for supplies.” An accompanying graph echoes those in the peak-oil literature and seems to show “world remaining oil reserves” shrinking to zero in about 2030.

The U.S. synfuels industry, which is just another name for the oil industry—Exxon, Shell, and the like—wants to regain its old subsidies and more. A military rationale, combined with a peak-oil scare, could be just the ticket. The oil companies are beginning to see peak oil as less of a threat and more of an opportunity. If the public is frightened into conserving, it’s a disaster for Big Oil. If the public is frightened into subsidizing synfuel again, it could be a bonanza for the companies. Although most peak-oil proponents favor sustainable approaches in theory, they tend to dismiss conservation and alternative fuels as too little too late. All that remains is coal, shale oil, tar sands, and the fear of gasoline shortages. Big Oil owes the peak-oil proponents a great big thank-you, not for predicting the peak, but for helping frighten the public into subsidizing a move into synfuels and unconventional oil.

Peak Oil and the Southern States Energy Board

The Southern States Energy Board (SSEB), originally the Southern Interstate Nuclear Board, is an interstate compact that Congress approved in 1962. Sixteen states and two territories have also approved it. A July 2006 SSEB report recommends a list of subsidies for Big Oil, similar to those recommended by the federal Task Force on Strategic Unconventional Fuels. Here’s how the SSEB justifies the subsidies: “America now faces a crisis of historic proportion: a liquid transportation fuels crisis. This Study shows that immediate implementation of ‘crash’ programs to ramp up production of domestic alternative liquid transportation fuels is the only way to insure against peak oil.”

Conclusion

The production of cheap conventional oil may already have peaked, but if not, a peak is sure to occur sooner or later. What should we do? We must not let predictions of doom either paralyze us or prompt us to take rash action. Rather, we should simply do what we should be doing anyway: taking measures to prevent climate change and end oil addiction. That will be sufficient. Conservation will work the most quickly and robustly in the short run, but we will need new technology for the long run. I sketch out a clear plan of action, aimed at both conservation and new technology, in chapter 7. (See also The View of the Army Corps of Engineers)

If we fail to take such action, the market will do the job for us. But prices will be higher. The world may see an extra recession or two, OPEC and the oil companies will make a killing, and the world will burn far too much fossil fuel while converting coal, tar sands, and shale oil into gasoline. Climate change will accelerate.

Should we choose to subsidize Big Oil, this will worsen our addiction at taxpayer expense, just as it always has. Our oil companies will make a slightly larger killing, and OPEC will make a bit less. Climate change will be even worse than if we let the market work alone, and the world price of oil will be just a bit lower due to the extra supply. The Chinese, who are very short of oil, will thank us.