Non OPEC-12 Oil Production Peaked in 2004

Non OPEC-12 oil production peaked in 2004 at 46.8 million barrels/day (mbd) shown in the chart below. This oil definition includes crude oil, lease condensate, oil sands and natural gas plant liquids. If natural gas plant liquids are excluded, then the production peak remains in 2004 but decreases to 42.1 mbd.

The US Energy Information Administration (EIA) and the International Energy Agency (IEA) should make official statements about declining non OPEC-12 oil production to renew the focus on oil conservation and alternative energy sources.

Non OPEC-12 Oil Production to 2012 - click to enlarge

Non OPEC-12 Total Liquids Production

The definition of oil used by the International Energy Agency (IEA) includes bio-fuels, processing gains and other liquids derived from natural gas and coal. While the IEA warned in July of last year that non OPEC-13 total liquids could peak in 2010, it now appears that non OPEC-12 total liquids peaked in 2007. Total liquids production in 2008 was slightly lower than 2007 due to Gulf of Mexico hurricanes and production outages in Azerbaijan and Kazakhstan. Unfortunately, Azerbaijan forecasts its oil production to grow by 2% or only 0.02 mbd in 2009 over 2008 due to oil field production problems and lower oil prices. Similarly, Kazakhstan's 2009 production forecast has been revised downwards to growth of only 0.07 mbd, representing a 5% increase over 2008 production.

There is recent increasing concern about non OPEC peaking in 2007. In February 2009, Merril Lynch stated that non OPEC total liquids production may have already peaked in 2007. Colin Campbell's January 2009 newsletter is forecasting that non OPEC production has passed peak in 2007, excluding bio-fuels. Halliburton also believes that non OPEC production may have peaked in 2007 as indicated by a statement from their Q4 2008 earnings call transcript: "Non-OPEC production fell in 2008 and is likely to decline in 2009. Russia, which accounted for the majority of the increase in non-OPEC production in the past decade contracted in 2008 and will likely do so again in 2009."

The forecast below shows a non OPEC total liquids peak of 50 mbd in 2007 which exceeded 2004 total liquids due mainly to exponential growth in bio-fuel production from countries such as the USA and Brazil. It is assumed that production from non OPEC bio-fuels will continue increasing. However, according to a recent statement by Archer Daniels Midland, 20% of US ethanol production capacity has been shut down due to weak demand and poor margins. Consequently, US ethanol production will probably not increase until oil prices increase, marking an end to the unsustainably high US ethanol growth rate.

Non OPEC-12 Total Liquids Production to 2012 - click to enlarge

Non OPEC-12 Crude Oil, Lease Condensate and Oil Sands Production

Neither the EIA nor the IEA have stated that non OPEC crude oil, lease condensate and oil sands production has peaked in 2004. These government agencies will probably make official statements acknowledging this 2004 peak by the end of the year as key non OPEC producer Russia has stated that its production is in decline now. Russian production could fall by 8% from 2008 to 2013. Russian crude and condensate production has fallen from 2007 at 9.44 mbd down to 9.36 mbd in 2008. Continuing decline in Russia means that non OPEC crude, condensate and oil sands has passed its peak in 2004.

Non OPEC deepwater oil production from the USA Gulf of Mexico and Brazil has increased significantly since the mid 1990s. Unfortunately, production from the USA Gulf of Mexico peaked at just over 1.7 mbd in June 2002 and has been in steady decline. Brazil's production should increase to late 2009, followed by a bumpy production plateau for several years. The Gulf of Mexico Thunder Horse field should be producing over 0.2 mbd of oil soon. However, the annual decline rates of mature fields in deepwater regions such as the Gulf of Mexico are about 20%. Overall, additional deepwater oil production capacity from Brazil's Santos basin and offshore Ghana should ensure that total non OPEC-12 deepwater oil production remains on a peak plateau for at least five years.

There are simply too many non OPEC countries with declining production which cannot be offset by increasing production of about 0.50 mbd in 2009 from non OPEC countries including Australia (0.04), Azerbaijan (0.02), Brazil (0.19), Canada (0.10), Kazakhstan (0.07), Sudan (0.04) and Vietnam (0.04). Production declines in 2009 from Mexico (0.24), Norway (0.21), UK (0.19) and Russia (0.26) are expected to be about 0.90 mbd which is greater than the 0.50 mbd increase. Consequently, I am forecasting non OPEC-12 crude, condensate and oil sands production to be 41.0 mbd in 2009, 0.3 mbd down from 2008 and 1.1 mbd down from the 2004 peak of 42.1 mbd. The annual decline rate is expected to increase in 2010 because Australia, Brazil, Sudan and Vietnam are not expected to provide a production increase.

Next, I decided to send emails to the supply forecasters and senior executives at the EIA and the IEA asking the following question.

Do you think that non OPEC-12 crude oil, lease condensate and oil sands production has passed its peak five years ago in 2004 at 42.1 mbd?

The IEA's response, after several emails, was very poor. The only response was to refer me to their publications of which Table 11.1 from the IEA WEO 2008 has some useful data points. Non OPEC-13 crude and condensate production data was given for years 2000, 2007 and 2015. Indonesian production was added to these data to get Non OPEC-12 crude and condensate for these three years. Data from the IEA's Oil Market Report was used to estimate production for the missing years from 2001 to 2006 and 2008. Historic oil sands data were also sourced from the IEA WEO 2008. Based on these estimates, the IEA data show a crude, condensate and oil sands production peak in 2004 of 41.7 mbd, as in the chart below.

The EIA's answer to the question was that "the non OPEC-12 production path when considered in the context of market events does not support the conclusion that non OPEC-12 production peaked in 2004. We have not seen the future data points yet." Nevertheless, the EIA provided an historical and forecast data extract for non OPEC-12 crude, condensate and oil sands production from their Annual Energy Outlook 2009 Early Release. Similar to the IEA data, a crude, condensate and oil sands production peak is shown also in 2004 at 42.1 mbd. The EIA projections are more optimistic than the IEA.

Notwithstanding the recent suspension of many oil sands projects, the EIA's optimistic oil sands projection is 1.9 mbd in 2010 and 2.8 mbd in 2015. The December 2008 report from the Canadian Association of Petroleum Producers (CAPP) titled Interim Update: 2008 - 2020 Western Canadian Crude Oil Forecast projects lower oil sands production of 1.5 mbd in 2010 and 2.4 mbd in 2015. If CAPP's oil sands data were used in the chart below then the EIA crude, condensate and oil sands forecast would show a decline from 2008 to 2015 rather than a bumpy plateau. The CAPP forecast will probably need to be revised further downward as the IEA is now forecasting oil sands production for 2009 at 1.34 mbd which is 0.10 mbd less than the corresponding CAPP number.

Non OPEC-12 Oil Production to 2015 based on Forecasts from the EIA and IEA - click to enlarge

Both the EIA and the IEA continue to forecast increasing non OPEC total liquids supply as shown by the EIA STEO and IEA WEO 2008. However, non OPEC-12 crude, condensate and oil sands production has almost certainly passed peak in 2004. If the EIA and the IEA were to make official statements agreeing with this 2004 peak then this should help raise awareness of decreasing oil production and potentially increase the focus on oil conservation and alternative energy sources. As non OPEC-12 production decreases there will be a much greater dependence upon OPEC which will strengthen its market position.

I urge everyone to send emails to the EIA and the IEA asking the question below which might persuade them to make official statements acknowledging this 2004 production peak.

Do you think that non OPEC-12 crude oil, lease condensate and oil sands production has passed its peak five years ago in 2004 at 42.1 mbd?

Relevant EIA email addresses can be found on this EIA contact page and those for the IEA on the Oil Market Report contact page.

Thanks Ace for your continued diligence on this front.

...does not support the conclusion that non OPEC-12 production peaked in 2004. We have not seen the future data points yet.

Using this logic, we can never know when oil, the stock markets, human progress, human happiness, human population, gold, corn, elephants, whales, CDOs and skyscrapers, have peaked, because there will ALWAYS be future datapoints....

"Peak Oil in the past" will likely never be acknowledged by those who don't already understand the wide boundary reasons for it (higher costs, lower aggregate real capital/wealth, aging infrastructure, resource vs. flow rate, etc.) Economists will always have an excuse - if it weren't for the credit crisis...if it weren't for such and such war, if it weren't for the depression, we'd be over 100 mbpd....etc.

Still, asking EIA, CERA/IHS and other institutions to at least provide realistic error bands not based on magical thinking, given how wrong they've been, can be helpful. Because it will inject some energy urgency into the current financial discussions dominating the political scene. What good are jobs and a recovery if we don't have the energy infrastructure to maintain them?

"Peak Oil in the past" will likely never be acknowledged by those who don't already understand the wide boundary reasons for it (higher costs, lower aggregate real capital/wealth, aging infrastructure, resource vs. flow rate, etc.) Economists will always have an excuse - if it weren't for the credit crisis...if it weren't for such and such war, if it weren't for the depression, we'd be over 100 mbpd....etc.

Still, asking EIA, CERA/IHS and other institutions to at least provide realistic error bands not based on magical thinking, given how wrong they've been, can be helpful. Because it will inject some energy urgency into the current financial discussions dominating the political scene.

I'm sorry, Nate, but I disagree. First you acknowledge that those who refuse to see this always have an excuse to continue not seeing this, then you suggest that by asking a question we can change their perspective. Yet the question was asked (by Ace) and they had an excuse.

It seems to me that your argument is circular.

The part I left out is that if IHS/EIA etc cannot provide such error bands, then those making policy/investment decisions might finally start to smell something fishy with the post hoc ergo propter hoc energy economic voodoo. If such an 'aha' realization that we are flying blind were to occur, then one would hope that decisions would me made more directed at basic needs than focusing on stock market, economic growth, etc.

In any case I put more weight in my first paragraph than in my second, especially at $39 oil. And thank you for pointing out the flaw in my reasoning. It probably won't be my last due to information return on time.

P.s stay tuned for next Saturday's campfire - might be one you'd like to read...

Nice report! Thanks Ace.

We often hear talk about how much of our imports we get from non-OPEC countries, but clearly these imports will have to drop as production decreases.

If we look at EIA Crude and Condensate data, we find that

-North Sea peaked in 1999 at 5,948,000 barrels per day
-Mexico peaked in 2004 at 3,383,000 bpd
-Russia peaked in 2007 at 9,437,000 bpd

Among the other larger producers, there are several whose 2008 production is below 2007 production, based on data through November.

-Canada (including tar sands) 2,626,000 in 2007; 2,586,000 in 2008
-Nigeria 2,350,000 in 2007; 2,173,000 in 2008
-Kazakhstan 1,360,000 in 2007; 1,339,000 in 2008

Even those whose production is expanding is not expanding very much.

-China 3,729,000 in 2007; 3,799,000 in 2008
-Brazil 1,748,000 in 2007; 1,809,000 in 2008

All of this information supports what Ace is saying.

There is also a rather lengthly editorial written by Jim Puplava of the Financial Sense News Hour that relates to this topic quite well. While he doesn't try to predict Peak oil he does look at the historical numbers and draws similar conclusions.

"Riders on a Storm"

One thing that Jim points out in his talk is that the price of oil really started to rise in 2004. I wonder if this may not be connected to non-OPEC 12 peaking in 2004, and the impact this had on world supply, and the oil we were buying. Below is a graph of one indicator of oil prices - the average cost US refineries had to pay for their oil inputs:

doesn't try to predict Peak oil

Why bother? Peak Oil is not even a mere nothing. Who cares? Of course, when he gets into the consequences.... oh hell, gimme that beer.

-North Sea peaked in 1999 at 5,948,000 barrels per day
-Mexico peaked in 2004 at 3,383,000 bpd
-Russia peaked in 2007 at 9,437,000 bpd

Note that the North Sea peaked when it was about 50% depleted, based on the HL plot.

Khebab noted, I believe in the 2005 time frame, that Mexico was approaching the 50% depleted mark, based on the HL plot, and would probably soon start declining:

(Edit, it was three years ago, in March, 2006, and Mexico's net export decline has been worse than projected):

And in my original post on the top three net oil exporters in January, 2006, after a good deal of discussion with Khebab, I concluded that Russia would probably resume a production decline within one to two years, although I probably overestimated the decline rate. Khebab, in our top five paper, puts the projected 10 year Russian decline at -5.1%/year plus or minus 2%/year:

Note that the absolute Russian peak was back in the Eighties.

And then we have Saudi Arabia, which is going to almost certainly show three years of annual production below their 2005 rate, at about the same stage of depletion at which the prior swing producer started declining.

The CEO of Total was just on CNBC. He said that the worst case would be a spike in oil prices, due to supply problems, before we see an increase in demand. That is of course what I expect to see--a combination of voluntary + involuntary net export reductions outpacing the decline in demand, with future net export declines being mostly involuntary.

Top Five Net Oil Exports versus Annual US Spot Crude Oil Prices:

No doubt also posted in Drumbeat: RIGZONE - Mexican Oil Output Down by 9.2% in January. The country is going down at a rate you'd expect from an offshore field.

Here's the schedule for 2009 Megaprojects, derived from the Wiki:

Khursaniyah (AFK Ph 2) was scheduled to come online last month, haven't heard about any ribbon cutting though.

Let's not forget the good old US of A! We peaked in 1970, and with the exception of one small bump, we've been in terminal decline ever since...

And the US went from the discovery of its largest Lower 48 oil field--the East Texas Field--in 1930, to zero net oil exports in only 18 years, in 1948, 22 years before we peaked.

Thanks, Jeff,

An interesting, useful fact.

I always enjoy The Oil Drum, thanks to all of you for your good, hard work. Seems to me that oil consumption PER CAPITA may well have peaked around 1979. Probably GREEN GNP or GDP - adjusted for environmental and other negatives - peaked about the same time. (Oh, by the way, Peak Soil, as a leading indicator, had to have occurred thousands of years ago.)

You are nearly correct. Oil per capita consumption peaked in 1978*, (though it has since been substituted by other primary energy sources).


*But we don't have future datapoints yet. For example, a halving of population and subsequent energy-led recovery would almost double the per capita oil consumption...;-)

Nate -- I assume your current data base doesn't have the details to refine the change in per capita consumption so as to compensate for that large (and growing) segment of the world which uses very little oil. Likewise, China's economic expansion would seem likely to have increased it's p/c consumption level even as its population increases. Essentially split the world into the haves and have nots. Or put more darkly, those who have the strength (financial and otherwise) to take and those who will have only what little is left over.

IMO each developed economy will strive to maintain BAU which, at least in the sort term (the next 10 years or so) means maintaining p/c consumption by any means possible. It would be interesting to see what the current box score is for each of those future protagonists.

You are correct. But trading fiat currency for energy will only last so long. (it will last longer than a random draw because the worlds foremost fiat currency also has the most weaponry, but still.)

I don't have time to do that analysis but the data is out there -I'm sure some altruistic reader can come up with it: Oil consumption per capita for US, Canada, Germany, UK, Japan, France, Italy, China, India.

p.s. Matthew 5:5 ;-)

Off topic: what is your prediction for ultimate low in onshore NG rig count drop?

Don't need the Rockman experience and/or crystal ball -- ultimately, the rig count will approach zero. In the short-term, it is a question of price. How far will the price fall from $4, if at all?

Nate -- I didn't think so. I'll try to dig for it when I get a chance...buried by drilling problems right now.

Rig count: probably not to zero but I think we're right at the flex point in the curve. Assuming it takes the other big players as long as it did us to reschedule: the Feb/March time frame should show the biggest decrease yet. We will have dropped 15 of our 18 rigs in this period. A big IF but if others are working on the same clock I would expect to see the count drop at least 150 - 200 rigs by 1 April. Could be less but I suspect it will be more...twice that number wouldn't surprise me by the end of summer. And I'm not counting on a quick reversal. My very crude model tells me we won't see so much a cliff in NG production as a leveling out with a downward slope in 18 months or so. Even with few wells being drilled they’ll likely come on at very good rates in general. That will buffer to some degree the rapid decline rates of the most recent batch.

Thus no reason to see NG prices swing back up very quickly. It's difficult not to expect last year's volatility to continue down the road. And that's how most operators see it IMO. As a result I don't think they'll come rushing back into action as quickly as we've seen the last few years even when prices rebound. Too many got the wind knocked out of this last cycle IMO.

you're the expert - but to me (assuming financial markets continue to function), it seems the lower prices go now the higher they will go in the future - if they stop declining now, then they won't go up as much in the future - kind of like pushing on a pulled apart coat hanger shaped into a sideways S.

I think only the lowest cost, no debt, shale players will make it in the end. Lots of NG companies will go under. But alot depends where resting pulse of economy is. Oil refining, fertilizer, Milk bottles, baby diapers, GI Joe Toys with the Kung Fu Grip - where will the lines be drawn?

I'm happy financial markets work as well as they do. Thing is, the way I see them, the markets are saying the market doesn't work.

I agree Nate. I'm not so much an expert as I have daily access to the conversations in the oil patch. But prices don't need to go any lower to kill the shale gas plays to a significant degree....we're there now. The threat of potential cheap LNG imports is also hanging out there. IMO any uptick in prices will depend more on economic recovery over the next 2 or 3 years then decreased drilling activity. But in a 4 year or so time span it's easy to imagine the NG decline rate will become a dominating factor regardless of demand levels.

We've chatted elsewhere about the biz plan which has dominated the oil patch for at least the last 15 years: increase reserve base y-o-y no matter what it takes. The stock market demanded those y-o-y was THE valuation metric. Even if it means drilling marginally profitable wells. But we certainly won’t replace produced reserve base with our lower drilling activity in 2009. But even with lower NG prices the wells we do drill will be more profitable then those from 2008. Reducing drilling costs 50% + does more to help the bottom line then reducing prices 50% hurts. As I see it a change in such priorities may have a huge impact on NG resources in the US. I've been hearing more conversations along the lines you mention: minimal debt (especially not borrowing for low profit efforts), minimal staff (the industry is already dominated by disposable consultants and free service company hands), sustainable but measured drilling activity (i.e. keep the rig demand/rates down). Such goals do not predict a quick return to the drilling activity we’ve seen the last few years. I’m not 100% certain the public companies are ready to make such a step change in philosophy but that is the common chatter. The market doesn’t seem so much focused on growth as it is survival. And my company is definitely going into a survival mode. And that doesn’t offer a secure future (4 years out) for US NG consumers IMO.

Its funny we both posted comments on this a while back. The consensus was that the shale plays would contract to a steady state exploitation rate just as your describing now. I think its interesting that the industry seems to be pulling back to do exactly that.

Longer term UNG plays will probably continue to work in this manner this does not mean we won't have another period of over expansion but as time goes one I really think whats happening now will become the standard for the industry.

In my opinion the importance of UNG is not for fuel but for fertilizer production and to some extent plastics in the really big picture UNG will probably play a big role in allowing us to continue to produce ammonia for fertilizers for decades to come if not centuries. I'd say we have plenty for this use and that the economics should work.

Hi Mike,

re: "not for fuel but for fertilizer".

No competition between the uses, then?

Purrrrrrfect. "Since been substituted by other primary energy sources." Hello? Tom Hanks to Nate? Nate, you sure you write that right, boss?

If you look at the link below my graph there is data and graphs showing that per capita ENERGY consumption continued higher after 1978. It was just oil that peaked.

I have put together amounts on US per capita consumption, not just of oil, but of all energy fuels. Our per capita consumption of all energy products peaked in 2000, which is exactly when real wages stopped growing. It was about that time we entered into recession, followed by unreasonably low interest rates, and greatly expanded debt to people and businesses who should never have qualified.

Figure 1. US Per Capita Consumption of Energy, based on EIA data

I do not expect US per-capita consumption of fuels to ever increase back to prior levels, because we have been importing a growing proportion of our energy use, and don't have funds to pay for this energy.

Figure 2. US Per Capita Consumption of Energy, broken down into US produced versus imported.

In Figure 2 , one could argue that the import category is somewhat understated. Electricity provided by nuclear is not shown as imported, even though most of the fuel and enrichment services are in fact imported. If one adds nuclear together with other imports, the picture of imports is probably more accurate.

A major problem is that we cannot afford even our current level of imports, because we are not making enough high valued goods with the energy resources we are importing to keep our balance of payments in line.

And our doubling of food imports over last decade has shrunk our net ag export trade surplus from 26 billion in 1996 to only $5 billion in 2007.

(i.e. it's not like we are turning accelerating imports of one basic good (energy) into accelerating exports of another (food).

P.s. for the record, Prof Goose told me in 2006 it would be good to have an actuary on staff who understood energy.

Lets not forget our increasing I-NPKS import reliance either [check USGS stats] as it helps make the picture even more dire from a national food security standpoint,IMO. Don't forget the UN FAO is forecasting that North America is headed into a phosphate deficit. Have I mentioned full-on O-NPK recycling before plus strategic reserves of I-NPK?
My take on Matt Simmons' suggestion that Russia is running into natgas production shortfalls during the winter and possible future effects on global I-NPK movements.
As usual: Have you hugged your bag of NPK today?

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Hey Nate,

I was considering your agri-graph above when another thought occurred to me related to the NPK issue:

The food imports are probably hi-value items like coffee, bananas, chocolate, plus other items that we can't grow here, plus off-season fruits and veggies [that we can't grow year round], plus varied meats.

Generally, these all need much higher input levels of fertilizers compared to grains [which is what we mostly grow/export]. Feed additives for imported meat [animals we eat] also requires much P & K too, not to mention huge amounts of water/animal.

Thus, when the postPeak times arrives: either we won't be able to import these items anymore due to massive FF problems, or we will need to build a huge amount of US greenhouses + even more I/O-NPK if we want to try and grow this same food volume year round inside the US.

So, given the fact food production increases with increasing concentrations of atmospheric CO2, commercial use of CO2 inside greenhouses will be subsidized while commercial use of CO2 outside greenhouses will be taxed?

A complete accounting of the agriculture industry's trade balance would consider all inputs. We import oil, fertilizer, farm equipment, and other inputs. I bet overall US agriculture runs a net trade deficit. This does not bode well for WTSHTF.

Thanks Gail,

interesting graphs I hadn't thought about yet.

A major problem is that we cannot afford even our current level of imports, because we are not making enough high valued goods

Do you guess who had the same idea before you?

In his book The coal Question William Stanley Jevons wrote in 1866 things that now sound very contemporary (just exchange England for North America and North America for Chin0PEC to get the updated version):

Our industry will certainly last and grow until our mines are commonly sunk 2,000 or 3,000, or even 4,000 feet deep. But when this time comes, the States of North America will still be working coal in the light of day, quarry-ing it in the banks of the Ohio, and running it down into boats alongside. The question is, how soon will our mines approach the limit of commercial possibility, and fail to secure us any longer that manufacturing supremacy on which we are learning to be wholly dependent?

When our great spring is here run down, our fires half burnt out, may we not look for an increasing flame of civilization elsewhere? Ours are not the only stores of fuel. Britain may contract to her former littleness,

With fuel and fire, then, almost anything is easy… But when this fuel, our material energy, fails us, whence will come the power to do equal or greater things in the future?

I think he had more about the import balance problem but I don't find it right now.
Anyway, although not all of Jevons' warnings came true some did. At the turn of the century Europe passed the economical leadership of the world to the USA.

"2000...when real wages stopped growing"

This looks like a mistake in measurement:

"Martin Feldstein has a new working paper showing that, contrary to conventional wisdom, U.S. real wages have kept up with productivity in the nonfarm business sector....In the more recent period between 2000 and 2007, productivity rose much more rapidly (2.9 percent a year) and compensation per hour rose nearly as fast (2.5 percent a year)."

That doesn't match up with what I am seeing. This is a graph I made showing household debt and real wages, on a total US basis. Perhaps he is looking at some segments.

Household debt outstanding and employee compensation since 2000. Household debt from Employee compensation from US Bureau of Economic Analysis. Adjustment to 2000 $ made using US GNP deflator.

These amounts are total dollars for the country as a whole, not per capita amounts. The US population is increasing about 1% per year, so one would expect the results to be worse on a per employee basis.

"This is a graph I made showing household debt and real wages, on a total US basis."

You need to include total compensation, including benefits.

hmmm. If I take the 2000 figure for "Compensation of employees, paid" of $5,698,713 vs the 2007 figure of $7,715,618, and deflate using 2000 GNP deflator of 99.311 and 2007 of 118.952
( ), I get an increase of 13% over 7 years, or 1.8% per year.

Feldstein says total compensation grew by 2.5%/yr, but even 1.8%/yr is very far from "real wages stopped growing".

The population was growing at 1% a year during this time period. You need to back that out as well. That gets you to 0.8% per year. One starts wondering where Feldstein gets his numbers.

I was using the one called "employee compensation" from US Bureau of Economic Analysis.

And, compensation does not equal real wages, does it? Or are inflation and other factors already considered? Are you two talking apples and oranges, or am I as out of my element as I know I am?


Whow, neglecting population growth sounds like a classical case of information bias!

I may remember that since the last oil crisis the purchase power of the poorest cohort of US citizens even went down. This was the client group the subprime credits were targeted to. So any surprise that sooner or later these credits had to crash?


BTW: It is often stated that a 10% GDP growth in China means the same as a 1% growth in Europe. This cannot be only due to population growth, which is only about 1% per year.
So does anyone understand why?

It is often stated that a 10% GDP growth in China means the same as a 1% growth in Europe. This cannot be only due to population growth, which is only about 1% per year.
So does anyone understand why?

It's to support the massive movement of people from low wage jobs in rural areas to a supposedly better life in the cities.

After thinking about it, it seems like what one wants to look at is either wages (including bonuses) without benefits, and possibly net of taxes. The amount employees have to spend does not really include the additional amount spent on benefits, even if the health care system became less and less efficient, so the cost of health care became greater. I am not aware of any evidence that a larger and larger share of employees are getting employee-sponsored health care-just that it is costing more for the same thing, or less.

I think one of the problems is measuring efficiency in a service-based economy. For example, in any real sense, the health care field has become less and less efficient. In comparison to other countries, outcomes have become worse, but we have more people doing more tests, and taking "better" care of 90 year olds, who will die regardless. This is not being measured. I imagine the efficiency experts believe that the finance system is becoming more and more efficient, because they learned to issue so many more loans, without ever looking at the people's ability to pay.

"taking "better" care of 90 year olds"

I think you're venturing far from your expertise - in this case, I'd note that we would naturally expect greater intensity of care for older people, unless we're going to put them out on ice floes.

" outcomes have become worse,"

I'm curious what you're looking at. The ones that come to mind, like infant mortality and adult life expectancy, are indeed improving. They're certainly not as good as one would like, but that has a lot to do with "diseases of affluence" due to obesity. Unfortunately, obesity is correlated with affluence.

"it seems like what one wants to look at is either wages (including bonuses) without benefits, and possibly net of taxes."

I don't know why - we don't try to separate out other consumption, like entertainment, that is rising without evidence of greater effectiveness (are we having more fun?).

Let's start over here - why look at wages, instead of overall GDP? Looking at subsets of income and consumption are interesting, but that goes primarily to distribution of income. I could go back and look at Feldstein's data more carefully to identify the differences with the data you're using, but I'm not sure if it's worth the time.

Do you really mean to be analysing distribution of income, or are you simply trying to look at the effect of primary energy consumption on the economy?

Adult life expectancy may be a function of diseases of affluence (in part only however) but infant mortality actually is a good gauge of how a society treats its people in general. It is more related to socioeconomic status than to any disease of affluence.


I agree. The US has a larger % of people who are poor and without good health coverage than many countries, and therefore doesn't compare well. In that case, income distribution is indeed the key thing.

My point was that infant mortality in the US is decreasing, and therefore that measure doesn't support the idea that US healthcare is becoming less efficient/effective.

I have spent a great deal more of my life dealing with health care than with energy. My father was a physician; I have a brother who is a psychiatrist; I have worked with medical malpractice insurance as an actuary for many years; and I have had to deal with taking care of elderly relatives and their many visits to doctors and hospitals.

Having dealt with elderly relatives, I can tell you how trapped one feels in dealing with the system--being sent from one specialist to another to another, whether one wants to or not, with expensive tests involved. All of this is paid for by Medicare, except pills which are handled separately, so no one is supposed to complain.

I too have a great deal of experience with healthcare in the US, and I agree that it has many, many deficiencies: care is fragmented; physicians are rewarded for "procedures" and tests, not for thinking; physicians are obsessed with billing, and distracted from real care; there's far too much overhead; medical records and care in general is badly under-automated; far too many people are excluded from the system; etc, etc.

That's not at all the same thing as "the health care field has become less and less efficient". Perhaps we're just becoming more and more acutely aware of what's possible, and how far we are from it.

Also, as frustratingly and tragically far as US healthcare is from what it ideally should be, it still appears to be as good or better than any other system in the world. Elsewhere, coverage is far more universal, but care is very badly rationed; research is a little less oriented toward big pharma (which is good), but fundamental drug research is mostly done in the US, and the US subsidizes the rest of the world by selling drugs at much lower prices than in the US.

"Electricity provided by nuclear is not shown as imported, even though most of the fuel and enrichment services are in fact imported."

Fuel is a small % of the cost of nuclear power (and is likely to stay that way, even with large increases in uranium prices), so I would argue that the chart as shown provides a realistic picture.

"most of the fuel and enrichment services are in fact imported"

Are you sure about enrichment services? That doesn't sound right - do we have more info?


Don't confuse cost$ versus energy: a power plant with no fuel doesn't have any output.

"Don't confuse cost$ versus energy: a power plant with no fuel doesn't have any output."

Is your point that there might be an absolute shortage of uranium, and we might run out at any price?

My reading of the comments in response to the recent TOD article on uranium didn't support that. In the short run there certainly could be boom-bust cycles of supply expansion and shortfalls, but in the medium-term there aren't really resource limits.

I didn't really see a definitive resolution of the question, but it looks to me like there are too many alternative sources of uranium, including weapons recycling, reprocessing and expansion of existing mines (including mines in the US, at substantially higher costs, of course), for us to have an absolute shortage.

I agree that it would be nice to have a really clearcut, definitive answer, but uranium supply looks nothing like oil to me. Oil flows into reservoirs. Where there are no reservoirs it's lost forever, and where there is a reservoir you have a pool with fairly defined edges, the edge of which you can hit relatively abruptly.

That's very different from uranium which is much more abundant relative to consumption, much more widely distributed, with ore-quality distribution that is much more uniform than oil.

This is the Uranium Enrichment Services graph from the EIA website:

US Uranium Enrichment Services by Source per EIA

We get about half our nuclear fuel from downblended Russian nuclear bombs. A big piece of our enrichment services comes in this way.

From your graph, it's obvious that the USA has nearly 8 million SWU/year of capacity available, but around 3/4 of it is not being used.  This needs to be taken into account in any claim of future shortages of LWR fuel.

Doesn't that imply the businesses and infrastructure extant prior to '01 still exist in usable form? Is that likely?


I think our enrichment facilities are really inefficient. USEC (2007 Annual Report & 10K) is the only US provider and uses gaseous diffusion technology developed in the 1965-1985 period. It is in the process of trying to build a centrifuge plant, but seems to be having troubles with financing. Its credit rating is dreadful (current bonds are CCC and Caa2 rated), and is looking for a government guarantee of for the additional financing it needs.

The 10K referenced above also mentions other companies with plans to build centrifuge plants. These are Louisiana Energy Services (controlled by Urenco) and General Electric. I haven't investigated how these plans are going forward in today's financial environment.

If the premium of LEU over NU goes high enough, it would justify running the inefficient plant; enrichment of the fuel for a plant even via gaseous diffusion requires only a few percent of the plant's output.  (Of course, we should replace GD with centrifuges or better tech in order to free up the energy; negawatts are negawatts.)

I found this:

"The remaining discrepancy between available capacity and demand is likely to be the result of the diffusion plants running at below full capacity. As noted above, they have much higher operating costs than centrifuge plants and can easily be operated at reduced capacity. In particular. it is likely that the supply of HEU material to USEC from Russia is displacing some of the capacity of the US dillusion plant. It is known that the cost to USEC of the HEU-derived enrichment is less than the unit operating cost of its diffusion plant (as the cost of electricity to the plant has recently increased sharply as long-term electricity contracts came to an end)...."

This seemed relevant to the previous Post about Uranium supplies:

"It is also relevant to note there that, as discussed above, enrichment capacity can to some extent be used to produce additional uranium supply, by operating enrichment plants with a lower U-235 assay in the tailings stream. This means that utilities can reduce their uranium demand by 10% or more provided they have access to sufficient enrichment capacity at a price which makes this economic (i.e. provided it is less expensive to buy more enrichment than to buy more uranium). Furthermore. so long as they have surplus capacity, enrichment Plant operators can physically operate their plants at lower tailings assays than that specified in contracts with utilities, effectively producing additional uranium (which they can then sell in the market). This is always likely to be an attractive option for enrichment plant operators. as their marginal costs of production will normally be less than the price paid by utilities for enrichment services."

From Nuclear Development Market Competition in the Nuclear Industry: Nuclear Development
By OECD, Ad Hoc Expert Group on Market Competition in the Nuclear Industry page 60-61

"most of the fuel and enrichment services are in fact imported"

Are you sure about enrichment services? That doesn't sound right - do we have more info?

If the conversion of Soviet ex-weapons fissionables to PWR fuel is counted as imported enrichment, it seems likely at first blush (I have not checked the numbers).

That's not the whole story. There was some other inflection point - probably in the 70's. Maybe a derivative or a second derivative - growth or the change in rate of growth. I'm losing interest in it on it's own merits, but care because it establishes a datapoint. Gail, is it easy for you to do an EROI on those numbers?

Fat was late 70s.

Sorry, I am not the EROI person. Maybe David Murphy.

I posted a link to the report being used for EROI analysis on the nuclear thread, a few days ago.

Ace, great update. I'd love to see another graph showing btu production of total liquids, as Rembrandt shows in his Oil Watch Monthly. With biofuels containing less btus per gallon, and some variation in btus/gallon of other liquids, I imagine your charts in this piece would show a more serious peak terms of btus (usable energy).

By the way, Ace lives in Australia. I expect that he will be on-line late this afternoon, which is his morning.


As biofuels contain less btus per gallon, non OPEC peak total liquids would probably have occurred in 2004 rather than 2007 when measured in energy units rather than barrels. The peak is important but more important is that non OPEC production is in decline now. OPEC may be able to offset part of the non OPEC decline but some OPEC countries may decide to preserve their oil for higher prices later or for future generations.

Saudi Arabian King Abdullah Thinks Seven Generations Out, Will Leave Newly Discovered Oil Fields Untapped For Now

“I keep no secret from you that when there were some new finds, I told them, ‘no, leave it in the ground, with grace from god, our children need it’,” King Abdullah said.

Some OPEC countries might want to be paid in a gold backed currency rather than fiat money. The Middle East Gulf Coast countries are planning to issue a unified Gulf currency probably by 2011.

This currency, possibly called the Khaleeji, might be backed by gold.

I second the motion... why not show ethanol production reduced 1/3 to account for fewer btu's, which is what we really want, the more the better. This has nothing to do with arguments re: EROEI, or the lack thereof.

I think it is a slippery slope. If they reduce it by BTU content, then they have to address energy quality issues, which they don't have expertise to do. It also opens the can of worms on other energy used in energy production e.g. in case of tar sands, etc.

They are probably well aware of the incongruity, but habit and fear of complication prevent changing it - several years ago I advocated that we start a 'shadow IEA' to show BTU adjusted graphs of each months EIA release - but we just don't have the horses.

And would it matter?

It doesn't take many horses to separate out the ethanol production and discard 1/3 of that value... the advantage is to more clearly identify that peak liquid fuel energy is in the past, something most don't know or accept... IMO this is more important than peak liquids, certainly from the point of view of those thinking we can easily switch to substitutes when we need to. And frankly IMO it is misleading to simply add ethanol to the top of fossil fuels, their energy content is too different.

'It also opens the can of worms on other energy used in energy production...'
I see this as quite different from EROEI issues regarding tar sands and others. Btu's simply refers to the amount of btu's available to the public, not the number that went into making the product. Certainly tar sands liquids are made possible by NG inputs both for heat and for hydrogen, but this simply means a conversion of NG to liquid fuels (which applies equally to ethanol), but I don't advocate subtracting the btu's of the various inputs... EROEI issues are important but would glaze the eyes of most listeners. BTU's they can understand.

As to does it matter... well, why does anything matter? TOD wants to draw attention to po, and writes extensively on the subject. In many ways it doesn't matter, most of the public will not be concerned until price rises... even now low prices have brought gasoline consumption above y/y levels and there is a little resurgence in SUV sales. But drawing attention to these issues is TOD's raison d'etre... And drawing attention to the fact that ethanol is not contributing in proportion to its volume helps expose both the ethanol myth and the peak in liquid fuels.

I first became interested in PO in late 2004 on account of ASPO, discovered TOD in late 2005. In those days PO was at all times pooh-poohed. Current low prices reduce the public's concern, but the more definition we provide to this issue the better. Naturally the information should be in easily digested bits.

"It doesn't take many horses to separate out the ethanol production and discard 1/3 of that value"

What did you think of Robert Rapier's post recently about the value of ethanol's higher octane? It certainly seems to at least partially compensate for lower BTU value, due to an ability to approach the efficiency of diesel with higher compression.

Here are a few references:

"Research findings released today show that mid-range ethanol blends--fuel mixtures with more ethanol than E10 but less than E85--can in some cases provide better fuel economy than regular unleaded gasoline, even in standard, non-flex-fuel vehicles. "

Per kdolliso: "The DOE estimates a loss of about 1.5% using E10. It's about the worst mixture possible when using ethanol. With the modern engines currently in use, E30 is probably the best.

Saab did/does a good job with its biopower engines using a variable ratio turbo to boost the compression when ethanol is in be fuel. This gives a lot more power using e85, albeit at a substantial loss in fuel economy. The next step is incorporating a method of altering "Displacement." This will enable an engine to obtain excellent power with gasoline, and great mileage with ethanol. When operating with gasoline the displacement will be expanded, and compression lowered. With ethanol the displacement will be reduced, and compression raised. The Ford Ecoboost, and Chevy's new (letters?) engines will be accomplishing this within a year. "

What do you think?

By the way, the this is a comparison of how OPEC-12 crude and lease condensate production is doing with non-OPEC crude and lease condensate production, using EIA data through November 2008.

Based on this data, OPEC 12 (OPEC 13 - Ecuador), OPEC production in 2008 through November is only up 1.4 million barrels a day relative to 2007, after all the price run up and attempt to raise production. Compared to the OPEC bumpy plateau in the 1974 to 1979 period, OPEC oil production in 2008 is up over only a little more than 2 million barrels a day over that period. We sometimes forget that over the long term, OPEC production has barely been growing.

First of all, thank you for this post Ace. I'm a long time viewer of The Oildrum but almost never post - there are simply too many good people here to steal your time with my comments :)

But I must emphasize hom much I was struck by the very probable possibility that non OPEC production has peaked in 2004. I first saw that a couple of days ago in a chart of Oilwatch Monthly (Posted here on The Oildrum) after visiting this page for years!

Also revealing is the chart above from Gail the Actuary, showing the almos flat long term production of OPEC.

A hidden peak in 2009 (hidden by voluntary production reduction) seems possible to me, now.

If one applies a sort of Moore's Law technology concept to the above graph to correct production for technical advances that overcome declines in production you would get a sort of broad peak centered on about 1995. The reasoning is that technical advances become weighted in time inflating later oil production numbers vs earlier ones.

One way to look at technical advances is to think about deep water GOM projects these sort of project would probably not be initiated in the Middle East right now but for technical/political reasons we are extracting the deep water GOM while other better sources of oil are available. One could argue that the entire North Sea was extracted early when it was only marginally profitable and should have been developed later. Technical advances played a key role in exploiting Alaska and the North Sea. And even in Russia. Like the atomic bomb political/economic motives play a key role in pushing technology forward so you can't cleanly split technical advances in a given area from the underlying political situation.

In general however technical advances almost always result in ever higher fixed costs you spend more to make less. This in my opinion has put us in a bit of a catch 22 as oil prices have fallen extracting the existing reserves while delaying further expansion makes sense but it simply ensures that future expansion will cost more. In fact paradoxically the current price collapse could be seen to be caused by the broad differentials in oil extraction costs adding the marginal barrel is horribly expensive driving the price skyward when demand meets capacity yet a significant amount of our current production still has low production costs because aggressive extraction of marginal reserves. We are cutting trees on steep hillsides while some regions still have plenty of trees in the valley to used forestry as and analogy.

The problem of course is that at the moment we are rapidly depleting our cheaper oil thus the next time that supply meets capacity we will see the price need to go ever higher to spur marginal development and worse this marginal development will need to grow even faster then it did before.
And even worse this economic signal has to function after a significant price and financial collapse.

We end up it looks like in a situation like the boy that cried wolf. Going forward I suspect the development of marginal reserves will be slow until it becomes clear to everyone that OPEC is past peak and they publicly admit it. Basically we won't be aggressive about either alternatives or extracting our marginal reserves until it becomes painfully obvious that its impossible for OPEC to meet demand with cheaper oil. What this means is I think the next phase will be one where extraction development costs worldwide will approach a constant and the large differentials we now have will be greatly reduced. The price volatility actually serves to create a sort of global level playing field for energy extraction with all sources effectively approaching the same development costs.

I continue to predict that we will see a large drop in global production over the next several years it looks like it will be masked initially by the economic crisis and then by assumptions that we simply need to invest at the level we did back in 2007 to reach higher production levels. Only after prices rise enough to spur serious renewed investment will we find out that marginal costs have actually risen dramatically worldwide and that we probably have passed over the EROEI cliff.

But on the same hand its difficult to conceive a significantly different scenario given the current wide disparity in oil production costs. Somehow the world needs to efficiently extract the most profitable barrels first while delaying the extraction of less profitable barrels despite our technical capability. In fact we see a similar sort of situation taking place in microcomputers the headlong advance to ever greater performance has slowed significantly in recent years with the focus now on cost and energy usage thus in computers Moore's law has taken a sort of breather as other aspects of the problem are optimized. Oil could well see the same sort of consolidation with a similar sort of leveling with most of the earths production approaching both similar technical levels and similar costs leaving only the remaining legacy production significantly profitable.

Great article!!!

Thanks, for taking to time to point out to the world the true facts.
Only wish that our goverment could read this and get on board.

Looks like 2009 is the year that Non-OPEC starts falling off of the plateau?
With the lingering recession, most people will probably not notice any change until 2012?

As non OPEC falls off of its plateau in 2009, OPEC is also voluntarily cutting production which will cause world total liquids to fall off of its plateau in 2009. As non OPEC production continues to decline, it is likely that world total liquids will not return to its plateau production rates from 2006 to 2008.

This recently updated chart shows both supply and demand falling in 2009. OPEC has been slow in cutting production to balance demand in order to remove excess oil stocks. The dashed green line indicates the long term price trend.

Supply, Demand and Price to 2012 - click to enlarge

Could you add storage to this chart? TIA

Given the errors in both production and demand calculations I like to use +/ 2mbd as a rough estimate its hard to see that your supply demand graph has made it out of the known error in the system despite the change in prices either up or down. Effectively in my opinion we have had no significant change in either supply or demand since about 2005.

I'm not disagreeing with what your suggesting with your price plot but on the same hand its difficult at least the way you have graphed this to suggest that the pricing assumption is clearly a result of your supply/demand gap hypothesis.

I'd suggest that the current prices are driven by the marginal excess or lack of oil i.e despite the large price swings to date the driver is a small precentage change in the overall supply vs demand say on the order of 2-3% or 2-3mbd or so. The fact that persistent shortages have yet to develop supports the concept that supply and demand are still in balance at some price. Not that shortages did not develop but they where fairly short lived and generally did not expand outside of the poorest countries.

I'd suggest that future prices will be determined by the onset of persistent shortages developing around the globe. Thus we should see a sharp paradigm shift in prices once this happens. From your graph this would be in my opinion when the difference between supply and demand approaches 4-5mbd.

This could happen as early as this summer or probably a bit later sometime in say 2010-2012. To be honest despite the recent price changes its not clear that the creation of a fundamental gap and the resulting onset of persistent shortages has really changed. At some point soon if OPEC can even reasonably cutback to overcome the short term glut we should be back into a tight supply situation.

The price graph should then show a sharp return in prices probably higher then what your showing but I think your timing is probably right given the current economic situation. From this point it will stay on your curve for some short period of time probably less than a year and maybe even just months but then it should start on a new slope similar to the one it was following in 2007 as shortages start developing. So I expect effectively the same situation as what happened in 2007-2008 to repeat but go higher maybe much higher as real shortages develop. We could well see a pullback but if so less than the recent one. So we should see a sort of sawtooth like price curve but I think well above your projected prices. The onset of persistent shortages is such a large factor that its difficult to project the current price movements past that point. Once it happens its really a completely different market from what we have seen to date.

This suggests that the price runnup in 2007 is a much better predictor for future price increases vs other nearby price changes. The cause of the gap was a still robust economy with falling supply. This cause was removed temporarily by the economic collapse but its difficult to see that further economic collapse will result in supply exceeding demand as future production also suffered. This is not to say that prices won't rise fast and also retreat but if they do retreat in the future it won't be for the same reasons as they did now and its a safe bet that significant supply increase won't be the cause. My best guess would be regional economic collapse causing outright demand removal. Say for example that China or the US collapses into civil disorder or even civil war. Or it could be something else even simply market dynamics who knows. It seems intuitive that as the gap widens the chances for steep price drops diminishes. Thus in a sense what your price curve is is probably better treated as the probability that the price would fall below the curve. Its really a rising and reasonable floor price that will be left once shortages develop.

I disagree with your basic tenet, as with Ace's. This downturn has teeth. Big, nasty teeth. If consumption doesn't track right along with falling production, or vice-versa, I'd be mightily surprised. What happens to your prices assumption, Ace, if production and consumption keep falling together?

Memmel, the above does not mean there will not be shortages. Systems are breaking down. Distribution will become increasingly more uneven overall, but the products should be available to the world economy at large, which should mitigate price rises to some degree, I'd think.


The problem with this assumption is that the cost of adding the new marginal barrel is significant.
For the most part theses costs are intrinsic in the nature of the new oil its deeper/harder to extract.
Thus low prices favor extracting our cheapest oil first deferring the more expensive oil for later development and worse probably delaying the projects. The amount of cheaply extractable oil is finite and declining i.e we really don't have more of it. As far as consumption tracking the downturn consumption was actually up slightly over last year last week at 0.7% overall we have seen in general consumption consistently follow about 3% less than last year. Historically in general in recessions consumption falls about 3-6% then rebounds. Even in the Great Depression consumption increased through the latter half of the depression. I have found no historical support for your assumption that consumption will track falling production. My self I don't think it will rise back to previous levels effectively ever but I'm assuming a high price environment returning. I don't think we will ever make the traditional V in consumption since falling production prevents rising consumption.

This is not to say that a fairly brief price drop is impossible ( in fact its happened :) But as far as I can tell from everything I've looked at low prices from falling consumption dropping demand lower than production only happen at the start of economic decline if production is also declining.

Finally the problem with your argument is there is no intrinsic reason for demand to follow falling production down. In a low priced environment there is no tight coupling between demand and supply. Supply is ample and demand is controlled by other factors. In fact the current low prices are a result of demand falling faster than supply. And in general basic economics says that falling prices spur demand. So basically there is no real mechanism to cause demand to fall faster than a declining supply base outside of chance in a low priced environment. This is not the same as high oil prices helping to trigger the initial demand drop thats totally different. Certainly it can happen and often does right at the start of a downturn simply because economic activity pulls back faster then the oil industry can respond this is simply a result of relative rates of response.

Every large industry initially overshoots at the start of and economic downturn leading to significant overcapacity and a sharp initial decline. Some industries such as housing can take decades to recover from overshoot but as you move into less durable goods and esp commodities it simply does not take that long for supply to adjust to demand esp since the low prices from the overshoot condition serve to slow and stop the decline rate in demand. In general it takes about 1-2 years for most industries to return to profitability after the initial decline phase. In past recessions this was certainly helped by lower initial energy costs. Despite the fact that we are probably entering the greater depression there is no intrinsic reason why the economy won't initially follow the more traditional recession path until it can't. Layoffs for example traditionally happen towards the end of the recession so if this was a simple recession we can expect the economy to stop shrinking over the next quarter or so and even show small growth by the end of 2009.

Given that this was a housing lead recession and housing prices in some areas are returning to afford ability we can expect that at least in parts of the country for housing sales to slowly pick up. This does not mean that prices won't continue to decline but sales volume should begin to spottily recover in some areas even this spring. For autos we may see a similar mix of good and bad news maybe say with the rate of decline in sales slowing. Same for layoffs as we approach 10% unemployment in many places we can expect the rate of increase in unemployment to initially decline.

I'm suggesting that all this will do is put a floor under oil demand and eventually result in oil prices starting to rise. Only after this sort of false recovery or autumn summer will we then turn down into the real Depression and it will be in a high priced oil environment that will directly prevent and real economic recovery.

Just as expectations that oil prices would simply increase forever as we passed peak turned out to be temporarily false we can expect that we won't simply fall right into the final Depression. In fact I'd argue that if commodities remained cheap for long then we could simply grow our way out like we have in every other recession. Certainly the massive debts will make it almost impossible to grow our way out without nationalization of our banking system but the banking system can and probably will be fixed by supposedly temporary nationalization and use of socialism and command economy methods. This will serve temporarily to stave of complete collapse on this front.

Think of this scenario we just tumbled through some steep rapids there are still some large rocks in the way but we are headed for a placid pool that happens to lie ahead of the mother of all waterfalls.

I'm simply saying we will go through each of these stages before we finally collapse.

Obama's team is actually betting big on this actually happening btw. They are hoping the process lasts through the next election I doubt it but on the same hand I think they are correct in seeing that a short term easing will happen in the next few months.

overall we have seen in general consumption consistently follow about 3% less than last year. Historically in general in recessions consumption falls about 3-6% then rebounds. Even in the Great Depression consumption increased through the latter half of the depression. I have found no historical support for your assumption that consumption will track falling production.

Well, we still have at least 3% built in, right? And, you are talking about the entire time of the recession/depression, right? Dude, we just finished the first year of this mess. There have been analyses of the current conditions vs. The Great Depression and indicators are falling faster and sharper than then.

This is not your father's Greater Depression. I should point out when I said P/C would track downward together that I did not mean forever. I'd say for a good while yet. Two or three years is possible. Shorter or longer than that? I dunno. We are not going to reach the end of the great swell in real estate defaults until 2011, so that's a good two years that consumption could be pushed downward because of the general drag on the economy.

Even in the Great Depression consumption increased through the latter half of the depression.

Sans energy decline and climate chaos, it did. With? Maybe not so much.

Finally the problem with your argument is there is no intrinsic reason for demand to follow falling production down.

I just named three. Let me add that people are scared out of their wits. Etc.

And in general basic economics says that falling prices spur demand.

Quoting economic theory to me is like quoting the bible to an atheist... won't get you very far. The Economist has no clothes, and all that.

I'm suggesting that all this will do is put a floor under oil demand and eventually result in oil prices starting to rise. Only after this sort of false recovery or autumn summer will we then turn down into the real Depression and it will be in a high priced oil environment that will directly prevent and real economic recovery.

I have no problem with the internal logic here, but I do think you're completely wrong. Time will tell. Oh, and this was not housing-led, it was housing popped (in no small part due to energy prices.) It was debt-led.

Think of this scenario we just tumbled through some steep rapids there are still some large rocks in the way but we are headed for a placid pool that happens to lie ahead of the mother of all waterfalls.

I got it the first time you made the point. Here's mine: It's not a nice big pool, it's a puddle. At the end of the day, the level of debt at every single level means no matter what we do, all the money thrown into the fix is simply vaporized. And that's why there will be no pool, just a few muddy puddles.


Hi Mike,

re: "Obama's team is actually betting big on this actually happening btw."

Do you think they "get" peak oil? (Seriously.) I should say, do you have any reason to believe they do?

I think Bush and Co grokked peak oil very well and I also think the Obama team if you will does.
This says absolutely nothing about the perception they have of when it will occur etc.
I'd suggest at a minimum that Obama is aware that the era of cheap oil is over in all the speechs I've heard where energy is mentioned this seems to be taken as a fact.

I think at the moment to focus is short term and on the financial situation. Longer term I question if Obama's group has seriously consider the interplay of the economy and peak oil. EROEI championed by Nate and WT's export land model are chilling reminders that the clock is ticking.

My opinion is Obama falls in the technology silver bullet crowd I think that he believes we will simply move to EV's and life will continue. I don't get the impression that he groks how serious things will become in a resource constrained world with six billion people. But you would have to go back to pre WWII history and understand it to understand how a world works when resources control is important.

The problem of course is if you go back to the period preceding WWII when the world was playing chess for resources you realize that resources played a huge role in leading the world to war.

Right now the world is playing money games in and attempt to restart their various economies. In my opinion we will soon see these turn into resource grabs and protectionism. China is already making major moves to take control of resources around the world as the US is preoccupied with its internal problems eventually probably soon other nations will begin to seek real resources not just money as they try to restart their economies.

All of this which in the end is the important stuff and something one would think a world leader should understand is I think missing from Obama's team. I think Obama thinks he has a chance to be a great leader for America during a time of crises I don't think he realizes he probably is a Franklin Roosevelt esp if he manages to get a second term.


I agree with you. I also remember Ace presenting the same chart last year and claiming that it was evidence that oil prices could never fall below 100 USD/BBL again! Well. They have. The question now is whether demand will pick up more quickly than supply: I very much doubt it for a number of reasons:

1. People all over the world actually are conserving energy. And will do so even more if energy prices increase again. (Both for economical and for environmental reasons).
2. Renewable energy is now being developed at a significant rate. Yes, it is not a huge contributor yet - but then again oil supply will only fall at the very most by a few %/year.
3. The marginal cost of producing an additional barrel of oil is plummeting. Rig costs are down, steel prices are down, engineering man-hour rates are down and profit margins are down due to increased competition.
4. There are literally hundreds of marginal oil fields out there ready to be produced the moment oil prices rise above 50 USD/BBL again.

We may very well have passed the world's Peak oil production - but that is by no means proof that oil prices will ever rise above 100 USD/BBL again!

I see from Ace's graph that he is predicting that oil prices will rise above 100 USD/BBL again by the end of this year. I very much doubt it.

One thing that has become very clear in this community is that PRICE is a function of supply and demand (and very good at equilibriating them short term, but a terrible indicator of long term scarcity or dearth...e.g. right now signalling long term abundance because it is priced at marginal barrel). Most peak oilers focus primarily on supply, because they know that supply is limited and will begin its inexorable decline. Oil supply forecasting might still be quite valid, but price forecasting on just this is throwing darts, because demand (drop/increase) will dictate what happens to price for the next year or two, until decline drops below resting pulse level.


Very well put!

And the interesting thing will be to see what happens when the decline drops below resting pulse level: Will we already have developed sufficient alternative sources of energy? Or will be struggling to produce enough oil just as we were last year?

By the way: I work in the oil patch - and there is no doubt that there are literally 100s of smaller development projects on hold right now. And, as opposed to last year, there is now some slack in the supply chain again - so projects can be developed very quickly when (and if) oil prices start rising again.

I agree about price, Nate, which is why I focused on the supply/demand ratio. What it does to prices is really not very important. There are too many other factors, most above ground, thus pretty unpredictable. Besides, any non-linear or chaotic (market/price) system is prone to lurches, leaps, bounds and crashes, no?

Last year commodity prices were nuts despite no shortages where I live, e.g.


Well on this issue I disagree with Nate in the sense that price is all that matters.
The effects of peak oil are economic this generally means the price of oil will be the driving force.
At some point the price of oil will reach a level that current use cases for oil are no longer economically viable. Four dollars a gallon seems to be the point that driving RV's and SUV's becomes untenable for example. At some point the price will reach a point that using oil to produce goods and services to make money to buy oil and make a profit becomes difficult. This is a price point not some production level. The question is do we hit this price point early in our economic contraction or very late if its early then the price of oil will be the driving force in continued economic contraction.

Certainly its a fiendishly difficulty problem but this does not mean you don't try and study it.
Everything I can find shows that the current low prices are a very short term situation the only question is how short ? Probably less than a year maybe as short as a few months.

Next of course overall economic activity i.e demand plays a huge role in prices and the balance between supply and demand and I won't go through that again but as far as I can tell all economic indicators that I can find indicate using historical data that the economy will and probably already has started to stabilize. This does not mean we won't see housing prices continue to fall in fact they will fall to zero in many places. But this is simply because we have way to many houses for a stagnant economy with retiring baby boomers. Just moving to a slightly higher density in our existing housing stock opens millions of units. And we can expect as the economy continues to be stagnant for this to happen.

In fact the entire debt bubble itself was driven by the baby boomers reaching peak earnings over the last couple of decades and investing heavily in the stock market and in real estate and buying new cars every few years. This inflow of wealth into the banking system served as the fuel for the debt bubble. The move to globalization served to hide the fact that this wealth was not derived from the labor of younger generations in the same country creating a very unstable situation.

Right now whats happening is this great decades long ponzi scheme is collapsing but its not the same as a basic contraction in the global economy. Certainly it causes the global economy to contract esp financial services as more and more boomers withdraw their investments in attempts to salvage their retirement. I suspect that many will not make it and only a few of the boomers will succeed in retaining a decent retirement. But its important to understand that this demographic bubble if you will has its own causes and its own path independent to a large extent on the rest of the economy.

First and foremost housing will lose decades of appreciation as it becomes increasingly clear that we simply have to many houses for our aging population with most of the real work offshored. Next the auto and financial bubbles will pop. Auto's as the boomers pullback on buying cars as they retire and financials as they move their wealth to safer investments. Certainly other economic problems are also occuring but so far the brunt of the problems have been and in my opinion will continue to be in the parts that should collapse as the boomers retire and the ponzi scheme they created collapses.
We simply don't need the banks, construction, and automobile manufacturing capacity we have today.

Now if you believe this is the situation then we have a excellent model for this in isolation its Japan which entered this demographic driven decline in the 1990's.

Moving to commodities and looking at oil usage for Japan one sees a steady but slow decline in a deflationary economy driven by demographic changes.

Given that the underpinnings seem to be the same we can expect the same initial result as Japan with oil usage going flat to slowly declining as our demographic bubble collapses.

Now in the case of the end of the US/European boomer generation we are much farther along the resource depletion curve then when Japan started to decline in the 1990's so the outcome is different and of course savings rates are different etc etc. But the basic economic situation based on demographics, population etc still points towards a collapse of the housing, auto, banking industries with overall flat to slow decline in the rest of the industry with oil usage remaining flat to slowly declining. A full blown depression will require additional factors either a banking collapse or we hit the wall on commodities esp oil. If it goes like I suspect then rising oil prices will eventually force our fiat currencies into collapse.

But back to the top this is why the price of oil matters since the price of oil will be the key factor in my opinion for turning this popping demographic bubble into a civilization threatening collapse because these same boomers actually used up most of the resources on the planet during their expansion phase. The assertion is that the boomer population cycle is tightly coupled and intrinsic with the resource usage cycle. The aggregate boomer wealth peaked with the maximum resource production capacity of the planet in a tightly coupled manner. The price of oil will determine when these two bubbles reach their critical point on the downside.

the price of oil clearly matters but knowing that supply is contracting, even permanently, isn't enough to know the future of oil prices. There are too many other factors, and possible trajectories - at least one I can think of is we NEVER break last summers high price of $147 (perma-depression and energy scarcity to where energy is nationalized and/or futures markets are stopped).

If we still have enough cheap energy around and/or if the consumption paradigm squeezes down from the top, then maybe there is enough natural capital available for us to again afford high prices (one more time). Remember, energy gain is what powers society - and we waited too long to switch to non-fossil fuels and reduce consumption so that lower energy surplus in aggregate means OECD countries can't afford the prices necessary to pull it out of the ground, nor the alternatives.

Demand is king again, until it's not. How much energy can we 'afford' in the long run is a highly relevant question. Charles Hall and David Murphy have a paper 'What is the Minimum EROI Required by Society' takes a stab at this question.

"OECD countries can't afford...the alternatives"

Nate, that's an awfully important assertion.

Electrifying all light vehicles, which account for 45% of US oil consumption, would only require an increase in generation of about 17% (220M vehicles x 12K miles/vehicle x .25KWH/mile = 75GW) in overall generation (450GW).

Wind, on average, produces power at 30% of its nameplate rating, so for light vehicles we'd only need 250GW of wind (75GW/30%). Wind costs about $2/W, so that would cost about $500 billion. Transmission might raise that about 10%, to about $550 billion. That's only $50B/yr for 11 years.

PHEV/EV's won't cost any more than existing light vehicles - the average light vehicle in the US costs $28K, and you could certainly add a plug and a much larger battery for $4k.

Similar calculations apply to air-source heat pumps for space heating.

I could give you many theoretical reasons why we can't afford them but one can simply look at the wind and electric car stocks - if things were cheap and they could make a profit to a population that could afford it, it would be happening. Wind and PHEV/EV stocks have tanked (for the most part) with the rest of market. ALL bear markets have winning sectors - if this path were so cheap explain why it isn't happening. If your answer is 'sunk cost' of using oil, I would agree with you.

Most OECD nations are broke and we import bulk of energy and pay for it with fiat currency. If that system is reset and we have to go back to labor, land, natural capital and technology but can't import the energy we do now, how much can we really afford? Oil and natural gas subsidize the integration of wind, space heating, etc. far more than most realize.

If we could wave a magic wand and freeze everyone in place for a decade and get 100,000 engineers and 1,000,000 construction folks working on it for when folks woke up, then it might be feasible. But then some would want BIGGER electric cars than their neighbors.

Write up a guest post on how we can afford it -both in dollars and natural resource terms and if credible, I will gladly post it, even if I disagree.

"Wind and PHEV/EV stocks have tanked (for the most part) with the rest of market."

I'm baffled that you would look to the stock market for an analysis of this. The stock market looks at the very short term, and this is a long term question. Would you use the stock market to evaluate any other energy question, like oil availability/scarcity?

Neither wind nor PHEV/EV's can compete with dirt cheap coal and oil. Wind has been growing very quickly, due to relatively recent government regulation. PHEV/EV's have been around for 100 years, and they've always had this problem. When oil rose above $2.50/gallon, suddenly PHEV/EV's were competitive, and a huge number of projects started, including the Chevy Volt, around which GM is literally planning its future.

What did you think of my cost analysis? It seems very straightforward to me - it's obviously much less expensive than many other things we're spending money on.

I'll have to take a little little longer to answer the rest. As to a guest post, thanks, but I'll have to wait a while in order to have the time to answer the inevitable torrent of critical replies. I invite you to look at my web site ( ), where I address many of the relevant points.

I'm baffled that you would look to the stock market for an analysis of this. The stock market looks at the very short term, and this is a long term question.

Unless your wind/PHEV plan would be under socialism or some other 'ism', the stock market is what we have now as an arbiter of what is profitable. Modern society (unfortunately) makes decisions based on the short term - not the long term. If you say that renewables can't compete with dirt cheap oil and coal that is kind of my point - most of the cheap fossil fuels got turned into existing infrastructure, garbage, and waste heat, and people became accustomed to it. Now the intermediate and expensive stuff is all we have left (plus renewables), but we have to power the monster already created, WITH more people, who are largely used to using and wanting more. As recent events indicate this is far more complicated than a simple engineering problem. It is a political problem. I will look at your website when I get a chance - and regarding a guest post - you needn't wait until you have time to address the torrent of critical replies - just put it out there and let the community debate the pros and cons.

Where does 'wealth' come from that is used to pay for energy, Nick?

Unless your wind/PHEV plan would be under socialism or some other 'ism', the stock market is what we have now as an arbiter of what is profitable.

Well, the auto companies are not making any money now, and recently came to Washington hat in hand. Seems like that would be the perfect opportunity to say "yesterday, you made ICE SUV's, today you make electric/hybrid/low mileage cars" (to paraphrase a probably apochryphal FDR quote).

If GM, Ford, Chrystler don't want to, give the $$$ to someone who does, and they can hire the UAW workers laid off when the Big 3 fail. Toss in a gas tax to incentivize the consumer, and you have an industry.

So what if they have to stop production for two years to re-tool? Nobody is buying any new cars anyway, and there are plenty already sitting around if they decide to.


I guess we should take a step back, and look at the premise that wind manufacturers aren't doing well. GE, of course, has seen it's stock fall, but that's because of their finance arm. IOW, they're not a "pure play". Vestas is the other large player: I took a look at them, and they seemed to be doing pretty well ( ), especially for a large, capital stock manufacturer. Such manufacturers are always hit hard by the stock market in a recession like this. They still seem to be profitable - and orders are increasing a bit from last year. It's not clear if world wind installations will be as high as last year (that was also affected by the US's delay in extending the PTC - that killed some early 2009 deals), but they'll still be quite healthy from a longer-term point of view.

So, let me ask, what were your specific concerns about stock market valuations? Which companies are you looking at, and what's the price behavior that concerns you?

"Unless your wind/PHEV plan would be under socialism "

Cap and trade, feed-in tariffs, and utility market share requirements are all out there - socialism not needed...

"If you say that renewables can't compete with dirt cheap oil and coal "

I'm saying that's the explanation for their not growing until recently. Now, let's be clear on wind's competitiveness. Coal is the big problem: old, dirty plants are dirt cheap. They will be for 50 years, if we continue to build and use them. We don't need wind to deal with PO, we need it to deal with climate change. We may or may not decide to aggressively replace coal with wind, but it's useful to know that it wouldn't be all that expensive: just $2T, less than the cost of a lot of other things: Iraq war, the bank bailout, etc, etc. Of course, wind has a payback, unlike war, and parts of the finance bailout - in the long run, and counting all costs, it's likely to more than pay for itself.

I agree that the main problem with energy isn't technical, it's political: the 20% of the workforce who would be made obsolete will fight it quite hard.

But, it's useful to come to consensus that this is the case, and that the technical barriers aren't that big a deal.

"Where does 'wealth' come from that is used to pay for energy, Nick?"

That seems to be two questions: How can we find the energy to build new forms of energy while oil production is declining?; and: Will our our balance of payments problems get in the way? Does that make sense?

You seem to be very focused on oil issues and seem to equate oil with energy.

"Most OECD nations are broke and we import bulk of energy and pay for it with fiat currency".

While it is true that some European countries import the "bulk"of their energy, Japan(not sure about Germany) is the only major economy that imports >50% energy. Definitely China, Canada, US, Australia import only a small part of their energy, but do import significant amounts of oil. I am not sure what proportion of energy UK imports(small amounts of oil, NG?, coal?). What options do oil producers have to accept for oil payments? its dollars or Euro's and not many for a barrel of oil !

History shows that during rapid economic growth countries have trouble "affording" new programs or wars etc because it is inflationary. During recessions new programs become politically possible as make work projects. During depressions new programs become essential for survival. During the 1930's depression, the US built many dams expanding energy options, Germany and Japan built up armaments to take resources form others.

"If we could wave a magic wand and freeze everyone in place for a decade and get 100,000 engineers and 1,000,000 construction folks working on it"

Not sure if the US has 100,000 unemployed engineers(if not could borrow a few from India) but certainly >1,000,000 unemployed construction workers, no need for a magic wand, Obama and congress seem to have made a start. The US has the auto manufacturing capacity to replace 220 million ICE's with EV and PHEV in <15 years. As Nick has pointed out providing 250GWc wind is not a barrier, in fact at 2008 new wind turbine build(8GWc) that would take 32 years, surely we can speed this up X2 to do it in 15 years! Not talking about a war economy( we could do it in 5 years), just a recession fighting economy!

"Oil and natural gas subsidize the integration of wind, space heating, etc. far more than most realize."

I do not understand this statement, new wind turbines have a EROEI at least 30:1 and possibly >100:1, most energy used would be from coal to manufacture steel and concrete or electricity to re-cycle scrap steel. The fast energy return of wind, could save future coal that would be used for electricity, to be used for steel and cement. The biggest oil input is the oil used in turbine gear boxes. Certainly NG is important for peak electrical power, but the US doesn't import very much and more wind generated electricity will free up NG and oil used now for heating, so that it can be used as back-up when coal, hydro,nuclear, wind and solar are not adequate.

I would be interested in any other "theoretical reasons" why we cannot afford to replace oil used in motor vehicle transport with electricity generated by nuclear or renewable energy.

The main reasons are time, and human behavior (endowment effect, ratchet effect, sunk cost, relative fitness, addiction/habituation, steep discount rates, etc.), which I have been writing about here since 2005 - I can't summarize it all in one paragraph. Unless there are government controls, the free market will not 'choose' wind and solar and nuclear while powering down. There need to be major near term sacrifices for this to happen and we are going in the OTHER direction (handouts instead of sacrifices).

In any case, our stock market, which dictates social/political decisions is in an energy mismatch with renewables, as the midpoint of the energy 'duration' teeter-totter is many years further out on wind/nukes than with drilling a natural gas or oil well. Profits this year/quarter/week have become embedded in our cultural pursuits, which are money not energy. Using discounted cash flows to arrive at present value of investment favors immediate payback energy technologies, especially with hyperbolic discounting that is prevalent in our behavior. The market is already telling us that oil/gas companies cannot use P/E or DCFs anymore though - that system is broken - some of these energy companies throwing off cash flow today might not have any oil/gas in 3-4 years time - so I am hopeful on the possibility of the way we value stocks (and indeed the whole system) may change.

Remember, something like 50% of US population would be broke within 1 month if they lost their jobs. 80% within 3 months (and this stat is old - Juliet Schor Boston U - I expect it is worse now and probably even worse for UK). How are we going to keep a social democracy going with everyone needing 25,000$ new vehicle + other expensive additions is more the question than 'can the oil BTUs be replaced by wind BTUs in the long run'?

P.s. I would have agreed with most of your arguments 10 years ago. But we have run out of time for smooth transition. Just look around you Nick.

Nate. I think that after the oil price spike of last year its time for you to time travel 10 years back in time. Come on. There's a huge upside in it for you: You'll even feel younger and regain your youthful optimism. :-)

It's not me I'm worried about.

Oil price spike brought every marginal energy source out into open - now that tide has receded we are seeing which ones have high energy gain and which ones don't. Energy gain powers technolgy, mistakes, maintenance, etc for society. Aggregate energy gain is going down hard in next few years. And that is not even accounting for per capita.

"Just look around you Nick."

ah, that was Neil.

"we have run out of time for smooth transition"

I'd agree with that - I'm glad to hear that you're looking forward to a transition, unlike some people. Now, how hard will it be, is the question.

"Unless there are government controls, the free market will not 'choose' wind and solar and nuclear while powering down."

I agree - again, regulations like CAFE, cap and trade, feed-in tariffs, and utility market share requirements are all compatible with free markets - they just provide guidance to the market.

"There need to be major near term sacrifices for this to happen"

Actually, the short term problem isn't electricity, at least in the US. It's more moving to PHEV/EV's, and we are, in fact, doing that. The Volt will be in large scale production in 2 years (GM is building it's future around it), and others will be as well.

"Remember, something like 50% of US population would be broke within 1 month if they lost their jobs. 80% within 3 months (and this stat is old - Juliet Schor Boston U - I expect it is worse now and probably even worse for UK)."

But this isn't very different from the past - most people have always lived paycheck to paycheck.

"How are we going to keep a social democracy going with everyone needing 25,000$ new vehicle + other expensive additions is more the question"

We have more than enough energy to build vehicles. For that matter, we can carpool and telecommute during the transition. We really can. I'm often baffled by the lack of awareness of the potential of carpooling: the US could cut it's oil consumption by 25% in 3 months, if it chose to. It would be inconvenient, and require an emergency to do, but everyone would still get to work.

Thanks for replying(if you meant Neil not Nick).
If you do accept that most OECD countries do not import most of their energy, the short term problem is dramatically reducing oil use and longer term replacing oil based transportation, NG and coal with nuclear and renewable energy.
Your comments about workers depending upon salaried employment are true, but probably less so than previous severe recessions. This is because more family units have two incomes, their are additional family supports, basic food costs are very low, a lot of debt is non recourse, and the biggest budget item is interest payments/rents that will decline if the economy stays in recession. Ironically, because people have so much, and so much disposable income they can cut back quickly, putting off buying cloths, or replacing that 2 year old vehicle, keeping the 50" plasma TV for another year, skipping a restaurant meal.

The US/Canada economy has a few additional advantages few others have: a large surplus of food, a large surplus of electricity generation, > one third non-carbon, some oil, some natural gas, most metals and good reserves of coal and uranium. If that isn't enough add large high quality wind and solar resources, a large educated labor force, surplus manufacturing capacity.

Many wind and solar projects are continuing to be financed, not by raising stock, but by sovereign wealth funds and pension funds that have a 20-30 year investment horizon, looking for predictable income. These projects have less risk than investing in an oil company where price is volatile, or a company whose product may become obsolete, or infrastructure that may be underutilized.

The stock market has only dropped 50%, others have dropped more on other occasions( Japan 75%, Australia 65%), in 1987 the US market dropped 25% in one day!. Most people in US are either at school, retired or have jobs, and most families have some salaried income. Last month, a million families purchased a new car and probably a million families purchased a not so old used vehicle.

How do economies ever recover from recessions? Can we use that built up demand and savings to improve energy efficiency of new appliances, buy fuel efficient vehicles? Everyone doesn't have to buy a new electric vehicle tomorrow, but most have to stop buying 15mpg vehicles and a lot of older low mpg vehicles will have to be scrapped before they wear out( can use the recycled steel for wind turbine towers). Fuel efficient vehicles are cheaper. It's happened before; 1980-1990 fuel economy increased from 12mpg to 18mpg.

We may need gasoline rationing or $8/gallon prices to really improve efficiency, but at TOD most of us expect one or both of these soon.

"PHEV/EV stocks have tanked"

Nate, I'm not sure what you mean by this - could you clarify? I'm not aware of any publicly traded PHEV/EV stocks.

"Most OECD nations are broke"

What do you mean by that? Sure, they're having problems, but they're all still operating, and spending (and borrowing) money.

"we import bulk of energy"

Who's we, white man (this is a reference to a Lone Range joke...)? The US doesn't.

"and pay for it with fiat currency"

Sure, and oil exporters are smart to take it. In fact, most oil exporters are starting to run deficits at the moment, suggesting that at things have reversed. This is a reminder to them that the good times can end, and they should save as much as possible when they can. They'll be happy to lend to the US for years.

" Oil and natural gas subsidize the integration of wind, space heating, etc. far more than most realize. "

I'm still not clear what "subsidize" means. Sure, we need oil & gas at the moment, but there's more than enough to provide for high-E-ROI investments like wind. More importantly, we have enough coal for a transition, which we'll use instead of allowing an "Olduvai".

"Write up a guest post on how we can afford it "

well, that's less energy tech than simple cost calculations. I provided them before, let me try again.

Electrifying all light vehicles, which account for 45% of US oil consumption, would only require an increase in generation of about 17% (220M vehicles x 12K miles/vehicle x .25KWH/mile = 75GW) in overall generation (450GW).

Wind, on average, produces power at 30% of its nameplate rating, so for light vehicles we'd only need 250GW of wind (75GW/30%). Wind costs about $2/W, so that would cost about $500 billion. Transmission might raise that about 10%, to about $550 billion. That's only $25B/yr for 22 years. That's obviously affordable.

PHEV/EV's won't cost any more than existing light vehicles - the average light vehicle in the US costs $28K, and you could certainly add a plug and a much larger battery for $4k.

The same calculations apply to air-source heat pumps for space heating.

the price of oil clearly matters but knowing that supply is contracting, even permanently, isn't enough to know the future of oil prices. There are too many other factors, and possible trajectories - at least one I can think of is we NEVER break last summers high price of $147 (perma-depression and energy scarcity to where energy is nationalized and/or futures markets are stopped).

Correct the problem itself is intrinsically a forced chaotic system all paths have some finite probability not unlike Feynman path intergrals. I mention them because the relationship between the two is fascinating. In one case no path is certain in the other all paths are effectively traveled. Neither can be solved with absolute certainty and your forced to gauge probabilites. I'd suggest that a depression in the sense your talking about is highly improbably simply because we now use fiat currencies that can be inflated. Right now all the money being printed is being swallowed in a black hole of defaulting debt but eventually we will print enough to overcome the current round of debt deflation. My estimate is something between 10-20 trillion dollars before we overcome the current round of debt deflation. Its very difficult to conceive of a realistic route that does not end in hyperinflation when you have fiat currencies. In fact as you go back in history even before fiat currencies money was debased significantly before the civilization collapsed. I'm not aware of a single instance of a civilization falling into economic collapse without first debasing its currency in order to clear its outstanding debts. It would be very interesting if someone can come up with and example. Even the US on the gold standard during the depression debased its currency for example.

Skipping your second paragraph since this is what I'm suggesting its where I think we are in the downturn.

Demand is king again, until it's not. How much energy can we 'afford' in the long run is a highly relevant question. Charles Hall and David Murphy have a paper 'What is the Minimum EROI Required by Society' takes a stab at this question.

This is probably the single most important and perceptive sentence I've read on the oildrum.
When we can no longer afford energy then our lifestyle is over and in my opinion the supporting civilization is also finished.

I just got back from Indonesia and now have absolutely no doubt that if we don't come together and aggressively work to change the way we live we will be fated to join the rest of the world in third world squalor. Indonesia was and is a fantastically wealthy country in the form of natural resources and they also obviously squandered away all of it. Except for the fact that the situation in Indonesia was more blatant and obvious I was unable to come up with a single reason why the US would not follow the same path if it does not recognize the danger.

In my opinion real Democracy can only exist if the power to vote is in the hands of people that are economically comfortable. In Athens it was slave owners in the US landowners then eventually the rest of the population but what was critical was that the person was free to vote his/her own future without economic coercion. This economic freedom often came at the expense of others in the case of the US the original inhabitants of the region for example. Thus intrinsically Democracy is not necessarily a good thing depending on how the economic freedom requirement was met. In most cases under the veneer of Democracy a terrible evil was committed to reach the level of freedom for some so a Democracy could function. However regardless of this all other choices are worse most much worse and fall eventually into unbridled power that often uses the mechanisms of Democracy to hide the truth.

We have in my opinion fallen into this fake Democracy already the next shoe to drop is simply when the veneer of the existence of an underlying economic freedom is ripped away. This is when we reach the point that you suggested Demand is King until its not.

Whats even more important is that our rulers recognize this. I don't think they are looking forward to ruling a world full of six billion desperately poor angry people. I suspect many of the tyrants they will be coming in the future will die early deaths either dragged out into the streets by and angry mob or killed by their fellow henchmen. So I don't think our current rulers are excited about the future after demand collapses. This does not mean they won't cling to power at all costs but it does mean that they will do everything in their power to push the current system along until it finally falls apart. Thus barring some sort of uncontrolled collapse I think its a safe bet that our current rulers can and will do everything in their power to continue to force our current system forward. And finally for a world with fiat currencies this implies that we will go through a period of hyperinflation before the actual collapse.

And last but not least we have no real reason to expect demand to collapse either during the initial debt deflationary phase or during the first half of the inflationary phase it will of course but again as long as our rulers maintain control then our collapse should follow as a fairly well understood path like every other civilization that has collapsed in the past.

For commodities of course this means demand will remain even if its artificially driven via government subsidy if required until finally as you point out Demand is king again, until its not.

Memmel. I very much hope you're not feeling as miserable as you sound. Life can't really be all that much fun if you are! :-) Perhaps you should think along the lines of the atheist buses in Lodon at the moment with the logo: "There's probably no God. Now stop worrying and enjoy yourself!".

How about: "There's probably not much easy oil left. So let's get to producing wind and solar and keep enjoying ourselves!".

LOL :)

Indonesia really hit home its the first time I've been in a poor country since becoming "enlightened" if you will about how energy works. For example we talk about using energy efficient transportation in the US and organic renewable agriculture well in Indonesia most people travel via very fuel efficient 100-150 cc motorbikes and agriculture is intensive organic and renewable and the country is very wealthy in natural resources. Yet it cannot escape the squalor of the third world. What most people are missing that are advocating renewable's as some sort of solution is that once the safety net that has been created in the first world countries is destroyed you end up with a ever larger class of desperately poor. This situation is unstable politically and leads to all sorts of excesses.
Graft corruption etc etc. What I've never seen from the people advocating that we will move to renewable energy and all will be well is a honest assessment of the financial and social costs of the move. All we have seen are projections based on current economic conditions. We had numerous posts in the past showing that with the current rate of new car purchases at the time that we would electrify our fleet within X number of years. I responded repeatedly that the number of people capable of purchasing a new car would dwindle rapidly as economic conditions worsened. Well guess what ...

I suggest you run the numbers using a ever worsening economy with a growing and increasingly impoverished lower class and ever more corrupt ruling class. How on earth is such a society going to make this magical transition to renewable energy with pots of gold at the end of everyones rainbow ?

This is the same society that was unwilling to make even the smallest sacrifice during good times and the same one willing to borrow its children's, grand children's and their children's future to prevent the slightest bit of tough times for its flagrant excesses at the first hint of problems.

I'm not agianst renewable energy and I advocate it. I've even written several times that despite the drawbacks of nuclear power we have to consider it. I've also written that we should seriously consider at least a short term expansion of coal fired plants if needed to make a transition. In fact in my opinion providing the electricity for a non-fossil fuel transportation network is do able esp if we cut back on excessive electric consumption in other areas. I'd even go so far as to argue we don't have a electricity supply problem even without renewable. The US has a aging grid problem but thats a different issue.

But thats not our problem thus electric cars don't solve our problem our problem is social and it will get increasingly worse. As it worsens our ability to remedy our problems using technology recedes rapidly.

Technology advocates tend to explain their solutions like our banks using a mark to fantasy model. They avoid mark to market and don't even address how the solution works as the economy deteriorates. I believe in them just like I believe our banking system is solvent.

The only person I've seen address this on the oildrum is Alan who has correctly pointed out that we where able to build out a rail network using far less resources and technology then we have today. Its the only solution that has a valid stress test all other ones depend on assumptions that have never been tested under dire economic conditions.

I'll just finish this tirade :)

The point is you have to do your homework and think hard about real solutions under real economic conditions. We will have to eventually transition our society no matter what under ever worsening economic conditions. I suspect if you work through the problem you will become a huge advocate of electric rail.

I most certainly am a huge advocate of electric rail! We should all look to Spain which will have a fantastically efficient high-speed network covering the whole country within 10 year. (A lot of it is already in place - just look at the collapse in the number of flights between Madrid and Barcelona).

"Spain which will have a fantastically efficient high-speed network"

Alan Drake maintains that high-speed rail isn't especially efficient (he likes rail, but at lower speeds). Do we have any data?

I think you're seeing problems the USA is heading for, but does not have to have:

  • Indonesia is a Muslim country, with all the in'shalla fatalism and submission to authority this implies.
  • Indonesia is very corrupt (endemic in Muslim countries, but also elsewhere).
  • Indonesia has major religious and cultural fault lines; the market-dominant ethnic Chinese minority is deeply resented by the majority, and some provinces like Aceh are trying to impose Sharia (worse for non-Muslims than Jim Crow was for blacks).

The USA doesn't have the first problem, has a handle on the second (though it's growing along with immigrant populations from corrupt countries like Mexico) and can do something about the third if we act.  Mostly, cutting immigration will help deal with all of it.

Indonesia also made some very bad decisions in the past.  When it was exporting oil, Indonesia provided subsidized petroleum products to the population.  This shortchanged other things like education, and led to very inefficient use.  Now Indonesia's production has peaked and fallen sharply; it is again a net importer, but it still has to waste money on subsidies to buy social peace.  The USA can learn from this.

I fully agree with much of this. One might say high oil price prompted the crisis, but if this was the primary cause than low oil price would have cured it. It is much more reasonable to say that the housing and credit bubbles caused the crisis because these problems have not been resolved and the crisis continues to unfold.

I further agree that the boomers are one part of the crisis, though the boomers are no secret while it was not commonly accepted that regulators were criminally negligent. To put it another way, the housing and credit crises did not have to happen regardless of the boomers needs and wants.

Now, however, boomers have become a panicked herd, they are moving from confident spenders to thrifty savers as they contemplate their (formerly near) retirement dates. It does look like Japan, we won't see much spending over the next several years and meanwhile, whether necessary or not, all the zombie banks will not be allowed to fail.

But they will spend on oil. In the depression there was only one year, 1930, of falling prices... and peak was nowhere near then. OPEC helping, non-OPEC falling, PO passing, IMO oil price has entered a continuing cycle of very high price that crushes demand followed by very low price that revives demand followed by even higher price on account of less oil/less btu's... repeat.

Hi Mike,

re: "At some point the price will reach a point that using oil to produce goods and services to make money to buy oil and make a profit becomes difficult. This is a price point not some production level."

How does road maintenance fit in? Along with other, basically, government-funded infrastructure?

It seems like there's a whole 'nother layer of interaction, in the sense that tax/public funds are required. (The "goods and services", are rather public, and spread out, and one step removed from the capital enterprises, so to speak.)

It could be the funds are not there; it could also be that (as you describe) the fuel price overwhelms the maintenance budget.

Well as far as roads we already witnessed the price of asphalt become a huge issue during the recent price increase road projects across the nation where deferred. I think they will now be deferred because of the financial crisis. The problem is that infrastructure like roads and bridges tend to decay rapidly if maintenance is put off for to long. The costs actually increase almost exponentially as a simple resurfacing or bridge repair turns into a road replacement or bridge rebuilding problem.

One of the big reasons I am dubious about EV's of any type is that infrastructure costs for roads are the same regardless of the type of drive train. Also of course most of the damage is done by heavy trucks and without and excellent rail system its not clear that we can reduce the damage to our roads.

Lurking in your public funds is a huge elephant in the room of socialized costs related to our oil powered suburban lifestyle they are on the same order of magnitude as direct fuel costs and generally sensitive to oil prices. As oil prices increase the tax revenue's will fall and infrastructure costs will increase. My opinion is the US when we finally reach the real high priced oil environment can only afford a fraction of its current infrastructure maybe as low as 10% of the current road surfaces are maintainable into the future the rest will probably decay.

A good way to get a feel for how much road surface a country can actually sustain per capita is to look at the miles of road per capita in various countries such as say Brazil or Vietnam etc.
I googled but could not find the numbers off hand. I've seen stats like this periodically and the US was well ahead of other nations.

The coming road crisis is on a 10-15 year time line however in some areas even a few years of deferred maintenance will lead to serious problems. I'd not be surprised to see serious road problems become news over the next few years in say Colorado or the North east as winter damage goes unrepaired or fixed with a quick patch.

Looking further out from the time we actually enter our real depression I'd say we have say 5 years or so at best before our road network becomes seriously damaged and the miles of passable roads starts dropping and and exponential or higher rate.

I'd not be surprised at all to see a lot of our current paved roads ripped up and converted back to gravel and the asphalt used to pave the main highways.

Outright theft of asphalt on seldom traveled roads could potentially even become a problem if the price goes high enough.

Probably more problematic for our nation is our freeway system which is very old now we could well see some of our interstates become impassible for extended periods of time as sections fail esp the routes through Colorado and say 1-80.

For the Northern states we could even see plows not run in the winter or only plow the main roads.
This will cause a lot of problems for people that moved into the exurbs and want to commute to work.

Overall all of this seems to be a bit further down the road ( pun intended :) but it does suggest that the US itself will face serious problems over the next 5-15 years in keeping its roadways functioning and interstate commerce flowing.

This alone justifies intense effort to replace our aging road systems with rail instead of trying to salvage them. Well built railways have lower maintenance needs than roads. Regardless of what numbers are thrown about the fact remains that extensive rail systems where put into place when the country had far less aggregate wealth then we have today so we know that a continent spanning rail system is possible and feasible with a economy the size of the the one we had in the late 1800's to 1900's. If we could do it then I'm certain we can do it now almost regardless of how poor we become.

I hesitate to even get into this one since roads are multi use and you can fudge the numbers however you like.

What all the reports made to date don't do is discuss if you have to choose one or the other and you don't have the luxury to have both. In my opinion if its a rail vs road issue esp for long distances rail wins hands down. And finally of course electrified rail makes even more sense.

Thanks ace,

I also checked these data last year and was also surprised to find a non-OPEC peak in 2003 and the 0ECD peak in 1997. I also chatted with Rembrandt and asked him to have a look at this question, as this wasn't covered in his Oilwatch for a while.
A major point that influences the timing of any peak is which type of oil you include in your statistics. For Colin Campbell the peak is long over as he only considers "cheap oil" but the IEA expects a further increase as they hope for a miraculous boost of "unconventional" production, which is included in their data.

As for my above findings, these were based on BP data, which seem to provide the most "pessimistic" results outside ASPO.

In the total liquids chart could you separate out the ethanol production, maybe as a different color on top, and then deduct 1/3 of the ethanol to account for reduced btu content? Thanks

It is not just the ethanol that is low energy. Natural gas plant liquids are also low energy, and the processing gain (which is what one gets by comparing the volume of liquids after refinement to volume before refinement) is also low energy. There is very little gas to liquid and coal to liquid.

As I understand it, once upon a time, crude and condensate was what was generally measured. The US imported a lot of oil and processed it, so started counting the processing gain (on both its own oil and imported oil) as its own, presumably to make the numbers look better.

The amount of these low energy product is quite big. According to the EIA, US oil production for 2008 through November averaged 8,493,000 bpd on a total liquids basis. On a crude and condensate basis, it only averaged 4,940,000 bpd. The 3,553,000 bpd difference is almost all (or all) low energy stuff.

If you were to average all the processing gains together, what would the cut be? 50%? 70? 80? Is the real value of total liquids 6,716,500 - 7,782,400 or so?


I have not really studied the impact of the processing gains. I know some natural gas is added in processing, so there might be some benefit from that point of view. When one goes from long chain hydrocarbons to short chain hydrocarbons (by adding a little H), the volume is greater, but short chain hydrocarbons have fewer Btus per unit of volume.

I believe that most of the USA crude production curves published on TOD have properly removed the extra counting. Amazing how creative accounting by the EIA can make it look like domestic production has plateaued since the early 1970's.
Is that the correct interpretation?

I agree about what The Oil Drum published. Most of the curves published for the United States are crude and condensate, which do not have the problem with overstatement. C&C seems to be the most common kind of curves for other countries as well. The EIA does not publish "total liquid" for most other countries.

I tend to agree with you that most oil "extender" fall into the creative accounting category. They have some value, but not as much as the base. I know Matt Simmons tend to use C&C in his talks, and talks about how years ago C&C was most of the total. Now the lower Btu items are becoming a larger share of the total.

Here's an updated forecast for world crude, condensate and oil sands to 2012. For March 2009, it is assumed that OPEC-11 will comply with 80% of its announced 4.2 mbd cuts from September 2008.

It is also assumed that some OPEC members start to increase production slowly from June 2009 to increase revenue.

click to enlarge

Re: 2012

Our middle case is that by the end of 2012, the top five net oil exporters will have already shipped about half of their post-2005 cumulative net oil exports, and Mexico will probably be at or approaching zero net oil exports.

Q. What's to stop production rising to pre-credit-crisis levels the moment that oil price allows it? (KSA gradually turns on the taps as oil rises to $70, $80, $90...)

-or are you suggesting that the recent OPEC cuts are more to do with field decline than turning off the taps?


I would say lack of credit is going to be the big obstacle keeping production from rising sufficiently when demand increases again. The extent of this impact will vary by fuel. If the producing companies are big companies that do not relying on credit, as in oil and coal, there may be less of an impact than in industries where large amounts of debt are the norm (natural gas and uranium).

Even where there are big well-financed companies involved, the actions of intermediaries may make a difference. For example, pipelines are important to oil and gas. I just read that Colonial is not expanding its pipeline capacity to Atlanta, because of the financial crisis and resulting lower demand for products. Without pipelines in place, it is hard for production and delivery to bounce back up.


Since I am forecasting that oil prices will increase slowly this year, assuming that demand does not fall further, I am also forecasting that KSA will increase production starting in about July 2009.

KSA's recent production falls are probably a combination of field decline and voluntary cuts. The green line on the chart below shows the annualised depletion rate of remaining oil reserves, sometimes called the extraction rate. In July 2008, the depletion rate was above 5%/year. I think that KSA's 9.7 mbd production in July 2008 was probably its maximum capacity.

KSA's capacity could be treated as a function of its remaining reserves. If KSA has 65 Gb remaining crude oil, then a reasonable capacity would be an annual depletion rate of 5% applied to 65 Gb giving 8.9 mbd. As KSA produces oil, its remaining reserves decrease which causes capacity to decrease.

The depletion rate of remaining reserves is forecast to be an average of 4.4% from January 2009 to July 2009, shown by the dashed green line. This depletion rate is the same as the average from January 2005 to December 2007. As the current depletion rate is less than 5%, this indicates that KSA has the ability to increase production back up to 8.75 mbd early next year, if required.

A critical assumption is that the ultimate recoverable crude reserves (URR) for Saudi Arabia, including half of the Neutral Zone, are 185 billion barrels (Gb). Saudi may have more, say URR 200 Gb, which may increase Saudi's forecast production rate but will have only a very small impact on future world crude production. For a further discussion of Saudi crude URR please click here.

KSA's production from February to April 2009 is forecast to be just less than 8 mbd as other OPEC members are unlikely to fully comply with announced OPEC production cuts. This source says that Saudi Arabia will cut to 7.7 mbd this month.

click to enlarge

Another important point about the chart above is that, excluding Nuayyim, all of Saudi's new projects of Khurais, Manifa, Shaybah and Khursaniyah are either workovers or expansions of fields which have already been producing.

The chart below shows the producing fields by red vertical bars. The OIIP of these producing fields was just less than 500 Gb in 2005. One method of assessing the reasonableness of the URR 185 Gb is to assume that if this URR relates only to producing fields, then the recovery factor would be an average 37% for these producing fields (185 Gb/500 Gb). This is well above the world average of 30% based on 9000 fields from the IHS database.

click to enlarge

The chart above is from Jack Zagar's 2005 ASPO presentation.

Zagar states the following about the higher Aramco estimates for OIIP trending up to 700 Gb in 2004:

These same ARAMCO contacts hint that the OIIP growth is perhaps a P3 or Probability P10 type estimate; statistically, this means that the higher OIIP number has perhaps a 10% chance of occurrence.

With the most likely OIIP estimate still in the 600 Gb range. Only time will tell if this additional OIIP will translate into additional oil in the tank.

A long term Saudi Arabia forecast is shown below. Saudi Arabia, including half of the Neutral Zone, produced 9.6 mbd in 2005. In 2008, crude production was 9.3 mbd. In 2009 it is forecast to be 8.1 mbd followed by an increase in 2010 to 8.5 mbd. Assuming URR of 185 Gb for Saudi Arabia implies that the dark blue line is the forecast production to 2080.

click to enlarge

I know everyone here at the Oil Drum is fond of jumping up and down and screaming when they see Mexico's oil production falling so quickly.

Well. There is a very good reason for this (The production falling that is - not the screaming!) so I thought I'd add a few comments to explain why I believe that at least some of the cacophony may be misplaced.

Mexico has probably the worst-run (national) oil company in the world: PEMEX. Instead of being allowed to keep some of their profits for investment in future projects, all the money earned from oil exports is handed directly to the government. Then, PEMEX has to request a budget from the government, (in competition with schools, hospitals, pensions, new roads etc), for funds for a project. This results in no funds whatsovever. Therefore PEMEX has always cut corners when developing oil-fields and in order to cut short-term costs, PEMEX has not installed water handling facilities on almost any of its existing production platforms. As a result instead of producing oil up to a water cut of lets say 70-85% as would be normal almost anywhere else in the world, PEMEX is forced to shut in a well the moment the water-cut reaches a mere 10%.

So. PEMEX could immediately invest in water treatment facilities on all its existing production platforms and it is possible that Mexico's total oil production could then increase to more than the current Oil Drum approved peak. But, it probably won't, or at least not very quickly, as the competition with the hospitals, pensions, schools etc. is going to be very tough indeed. AND. If you knew how complicated PEMEX bidding rules are (as I do), and how slow PEMEX is to pay its suppliers - and you were a supplier of such water treatment facilities, you might well not bother to offer your products to PEMEX.

Still. One thing is sure. When you are shutting in oil wells that are producing at 10% water-cut you are leaving a HELL-OF-A-LOT of oil in the ground to be produced later. :-)

Actually the "produced later" part is highly improbable since it would not be economic to rebuild the offshore infrastructure and re-drill wells to go after high water cut, low pressure fields. What makes it worthwhile to keep producing from a field after it goes above 10% water cut is the fixed capital investment which has already been paid back, you want to keep producing as long as you get positive cash flow above maintenance costs. The additional capital investment in such water handling facilities can only be economically worthwhile if it's an incremental cost and if the cost of financing is low enough (vs. the hospitals, pensions, schools etc.) and the price of a barrel of oil is high enough. None of this bodes well for future Mexico production.

Not even to mention EROEI!

sjn! Only partly agree with you. For anyone except PEMEX 10% water cut IS low water cut. The additional incremental cost may not be very large as in many cases an additional coalescer or similar can be fitted to the existing structures to allow production at far higher rates of water cut. However, I totally agree with you that at current oil prices Mexican oil production will keep plummeting. But. I maintain. That if all PEMEX's current infrastructure were taken over by Exxon tommorrow you would see a dramatic production increase within 12 months. But that, of course, is not going to happen!

But. I maintain. That if all PEMEX's current infrastructure were taken over by Exxon tommorrow you would see a dramatic production increase within 12 months.

I've heard Simmons comment on that claim. He says it's nonsense. In fact it's the past adoption of enhanced techniques that are responsible for the subsequent massive crash in Cantarell he claims.

I maintain. That if all PEMEX's current infrastructure were taken over by Exxon tomorrow you would see a dramatic production increase within 12 months. But that, of course, is not going to happen!

As you probably know, Texas oil fields and North Sea oil fields were managed by private companies, using the best available technology, with virtually on restrictions on drilling--until 1972 and 1999 respectively.

In 1972, Texas oil fields were taken over by a secret cabal of Communist conspirators, headquartered in the Midland, Texas Petroleum Club.

In 1999, North Sea fields were taken over a radical fringe group of tofu wielding Vegan terrorists.

You can see how Communist and Vegan mismanagement caused Texas and North Sea oil production to plunge, despite rising oil prices over the initial decline periods:

:-) Good try! But. We all see how Russian production collapsed (under poor management) and then rose dramatically again with further investment, before, of course, starting on a probably more terminal decline. However, if the two areas you mention above (Texas and the North Sea) had been run by PEMEX then the oil production would probably have spiked in about 1960 for Texas and in about 1990 for the North Sea. The extended production profiles were possible only by being able to handle water successfully. By the way, anyone who's been to Norway will know that it is fiendishly difficult to get hold of anything vegan.

Actually, Mexico peaked just shy of the 50% depleted mark, based on a logistic (HL) plot. The overall North Sea peaked when it was 50% depleted based on its logistic plot.

In any case, Peaks Happen--regardless of whether one is capitalist, Communist or Vegan--and as Hubbert demonstrated in 1956, a one-third increase in estimated URR only postponed the projected Lower 48 peak by five years, from 1966 to 1971.

Of course Peaks happen. Reserves are finite. We all agree on that point. What perhaps we have different perspectives on is what is the result - and how will we as a society cope.

Since we agree that Peaks Happen--even in areas managed by private companies, using the best available technology, with virtually no restrictions on drilling (e.g. Texas & North Sea)--why wouldn't Saudi Arabia and the world show similar declines at about the same stage of depletion (based on HL models) at which Texas and the North Sea respectively peaked?

But here is the conventional wisdom, and the implied message in the following quotes can be summarized as "Party On Dude."


"Rather than a 'peak,' we should expect an 'undulating plateau' perhaps three or four decades from now."

Mr. Robert Esser
Senior Consultant and Director, Global Oil and Gas Resources
Cambridge Energy Research Associates
Huntington, NY,
Understanding the Peak Oil Theory
Subcommittee on Energy and Air Quality
December 7, 2005


"Contrary to the theory, oil production shows no signs of a peak... Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year, or for decades to come"

ExxonMobil Advertisement in New York Times, June 2, 2006


We in Opec do not subscribe to the peak-oil theory.

Acting Secretary General of Opec, Mohammed Barkindo
July 11, 2006

Matt Mushalik asked me to post his updated graph of incremental production, where Matt is using the same split as Ace.

The countries below the black line are the Non-OPEC countries. You can see how their production has been falling since 2004. Among the non-OPEC countries, Russia was really was the only country growing, as one can see from the widening green band. Now that its production is falling, it is hard to see anything that will take its place. The big (and continuing) drop in North Sea production (represented by UK Norway), is a major contributor to the decline.

Matt and Gail,

Thanks for the great chart!

It shows how important Russia's crude production growth has been. Up to 2004, Russia's growth helped non OPEC-12 grow from 2002 to 2004. After 2004, Russia's growth rate decreased and simultaneously non OPEC-12 crude production decreased. Without Russia's growth, non OPEC-12 crude would have peaked in about 2002.

On a very optimistic note.

I think that last year's spike in oil prices was absolutely fantastic: It kick started a complete change in attitude to energy all around the world. As a result our future is a very much brighter one.

Some examples:

1. Wind power is expanding exponentially. (And in itself could cover most of our energy needs).
2. Solar power is expanding exponentially.
3. Energy efficient buildings and even zero carbon emission cities are now springing up.
4. More people are cycling/walking/taking public transport than ever before.

Electric/hybrid cars will completely take over our roads in the next 5-10 years freeing up enormous oil reserves to be used for other things. (I know I'll be told this is impossible and all the rest of it - but I'm absolutely confident that within 10 years the majority of new cars sold will be electric. And yes. I do realise that means that it will actually take 20-30 years to phase out most old-fashioned combustion driven).

Oil prices will probably rise to about 50-80 USD again, but then probably gradually start falling again as a huge number of alternative energy sources start kicking in in a big way. And, for all those of us who always bitch about the USA and China being the big environmental culprits, they're already both in the top three when it comes to production capacity and will probably be the top two next year. Things are changing fast.

And I'm looking forward to the future.

ps. Just need to convince a few religious leaders that contraception is a good thing or we will still be in trouble at some point. Hope you're all supporting those atheist buses now on the roads in many cities!


I applaud your optimism and Roger-Roger on the ps.

Some day I would like to visit Europe, including the Nordic countries.

I know I would be using FFs to tour Europe, but if my and others' efforts at writing Congress-people and the President to scale back the U.S. war machine are even a little bit successful, a Euro tour would be my small reward for that accomplishment. If I/We are not successful, then if I have the means, a little travel will be my reward for trying.

Everyone beseech their governments to recycle their armaments into windmills, electric vehicles, solar cells, smart grids, etc.

Nordic mist,

I agree with you - although most people on this site wouldn't. I think the two key factors are:

1. Inefficient use of fossil fuels right now. Most people could cut their total fossil fuel consumption by 10-20% without noticable detriment to their personal utility. Whether they do this by choice, or are forced to by rising commodity prices and a global recession, is largely irrelevant. If this assertion is correct, then we can tolerate at least 10 years of declining oil supplies before utility is impacted.

2. There is a staggering difference between the importance of fossil fuels in the day-to-day lives of most Americans and most Europeans. The 'car culture' is the biggest difference. The fact that $10 a gallon petrol (gas) doesn't really affect a country at all seems to be unbelieveable to some US based doomers.

I think that once the general public 'gets it' about energy security (I suspect they will never understand peak oil, but tell them all our energy supplies come from Saudi Arabia and Russia and they soon listen), and the investment into wind, solar and tidal power begins in earnest (and energy conservation takes off in a big way) then we can start to make a difference.

I just hope the public conscience becomes aware quickly enough and we can use those 10 years to the best of our ability to muddle through. The oil era is undoubtably nearly over, and presents manifold challenges; our job as a world is to meet them.


I agree with you 100%.

I also think there are probably more people reading the Oil Drum who agree with us than you might think - although there are always relatively few people who are willing to speak up agains the views of the majority! There will also be some people who say that we are just using the current low oil prices (which they will claim are only caused by the credit crunch and not by increases in alternative energy production and energy conservation - which is remarkable since they claimed that the high prices were only due to a lack of supply rather than any speculation!): I will answer that I've been banging the optimists oil drum for a long time (and my earlier posts on the oil drum made when the oil price was at about 150 USD/BBL already predicted falling oil prices and a successful switch to alternative sources).

So. Let's keep up the optimism and look for positive solutions for the future: After all, unless there is optimism and a positive approach people will just react by doing nothing.

You know, until oil prices started falling, the Oil Drum used to run a poll predicting future oil prices. How about running a poll over how many of us are optimists that new energy sources will make up for falling oil producion and who aren't?

I ran such a poll in December - you are correct - the majority were much more concerned than you on the question you address.

From the poll:
A combination of renewables, conservation and technology will make the transition away from oil relatively smooth. 3.5% 118

Society will go through hard times but eventually will emerge with new structure, systems, etc. that keep powering civilization forward, but with slower growth.
23.6% 799
Peak Oil means the end of growth. There will be large dislocations and unrest over time. There will be some disaster areas and some successful areas on the planet but the average living standard is going lower.
49.1% 1,664
Peak Oil and resource depletion in general will eventually result in a large dieoff in human population, via wars, famine, etc.
20.7% 700
I do not have a viewpoint that resembles any of the above choices 3.2% 107

The 'price polls' were usually done by Prof Goose who has been too busy to contribute much here of late. I too had predicted dramatic fall in oil prices but not because of a successful switch to alternative sources - and we have not - perhaps in Singapore or Sweden but not in US or China, which matters much for rest of world. I would predict that when 2009 data is in the 'exponential' growth of renewables will have ended. I wish it were otherwise -but you are fooling yourself if you think the tiny global increase in renewables caused the price fall. C'mon.

Running a poll on how many are optimists or pessimists is irrelevant other than for entertainment purposes. Procuring energy quality in surplus in time is not a popularity contest. There are vast disparities of the boundaries of analysis that people interested in this problem use. Knowledge and understanding of resource depletion is not democratic, and neither is it the purvey of experts (clearly).

You're right, the price falls are due to reduced demand from a global slowdown, partly driven by the high prices in the first place. That we are due a period of wildly fluctuating prices in commodities as this cycle repeats is without question.

Here is the crux of my argument against the pessimists (and any numerical support would be much welcome). Lets take the UK as a reference country, but a similar argument could apply anywhere:

- Current Oil consumption 1.8m bbl/day (or thereabouts)
- Pessimistic supply expectation for 2020, say, 1.4m bbl/day (or should it be lower?)

Current usage of oil is split into lots of areas (source:

- Transport (44%) split into personal (cars), industrial (lorries/vans), and public (buses/trains)
- Domestic (32%)
- Industrial (24%) and this includes manufacturing and R&D into clean technology

The industrial component of use is the smallest currently, and the amount spent on clean technologies is only a fraction of this total. We can absorb supply reductions (even under a worst case scenario) in domestic and transport. How?

- grants for home insulation (already in place and working)
- encouraging people to eat local food (support for which has never been higher)
- grow your own food (just look how many gardening programmes are on the TV in the UK, and waiting lists for allotments are at record levels)
- encourage working from home (needs more work, but this is tipping in the right direction)
- car sharing
- energy efficiency in home appliances (underway)
- etc etc

Of course, all of these things will become much more popular as the price of energy becomes more erratic. They have to be supplemented by positive action for the clean technology:

- tax breaks for green technology (underway)
- directing the use of oil and byproducts from what remains of the North Sea to green technology (a big step)

There is a huge tipping point in all of this - the UK has the best offshore wind resource in the world - with plans already in formation we could meet a lot of domestic energy usage from renewables, thereby reducing our oil needs by 30%. A high take up in people working from home would make a real dent in the Transport requirements too - hopefully buying us more time.

I don't doubt the current system is unsustainable, and I am a big believer in peak oil, and I recognise that reliance on a working economy for a lot of the clean tech stuff to happen, but we have to be optimistic that we will pull through.

If somebody warned us about the Blitz before it happened there would have been people queuing up to say we wouldn't live through it, and that it would be the end of the world - and what happened - we survived, every garden in the land was turned over for growing food, supplies of almost everything was rationed, but we survived and built our way out of it. And according to some analysis, the quality of life experienced during the UK has never been higher than during WWII - perhaps a bad analogy, but one should never be surprised at the strength of communities and society as a whole when under pressure.


1. Agreed. The fall in oil prices was almost only due to a drop in demand. However, I do believe that the increase in the production of energy from renewable sources and the conservation of energy are the key factors in limiting a future rise in oil prices.

2. My apologies for missing your poll which revealed an interesting result. I would most definitely have voted for the second option (while hoping that we can get away with the first with a bit of luck).


I would have added to your list:
1. Congestion charging/road pricing. (Already in place in London)
2. Improvements in public transport. (Crossrail/high speed rail links etc).
3. Variable taxes for vehicles depending on their energy efficiency (more or less already in place)
4. Commitment to buy energy produced from micro power-plants in peoples homes. (As in Germany, particularly with regard to solar panels in Bavaria).
5. Don't waste energy on nuclear but get on with wind power on a large scale.
6. Tax breaks for cycling to work.

There are lots more. And the good thing is that they can all be done in the short term. And they will have a dramatic effect on oil consumption in the short term.

Thanks, ace, (and, also, I'd like to address this to Nate, in particular)

A couple of questions:

1) Above you mention
"Neither the EIA nor the IEA have stated that non OPEC crude oil, lease condensate and oil sands production has peaked in 2004. These government agencies will probably make official statements acknowledging this 2004 peak by the end of the year as key non OPEC producer Russia has stated that its production is in decline now."

Are you confident they'll do this? So, your recommendation that we write is simply to ask them to do it sooner?

Or, do you think they might not - in fact, may never...?

2) I appreciate your suggestion for having us engage in actions that might raise awareness and increase the possibility of some positive action.

Nate, in his reply, above, says:

“The part I left out is that if IHS/EIA etc cannot provide such error bands, then those making policy/investment decisions might finally start to smell something fishy with the post hoc ergo propter hoc energy economic voodoo. If such an 'aha' realization that we are flying blind were to occur, then one would hope that decisions would me made more directed at basic needs than focusing on stock market, economic growth, etc.”

So, my question is...

Here is something I’ve been thinking about and looking into. Could you possibly let me know your thoughts about it? Do you think this would address the points each of you raises?

There is a body whose specific purpose it is to advise policy-makers in the US on matters for which objective scientific opinion is appropriate. That would be the National Academy of Sciences. (There are also the equivalents in other countries, along with cooperation efforts; I’ll leave out description of those for now.)

“The NAS was signed into being by President Abraham Lincoln on March 3, 1863, at the height of the Civil War. As mandated in its Act of Incorporation, the NAS has, since 1863, served to "investigate, examine, experiment, and report upon any subject of science or art" whenever called upon to do so by any department of the government.”

“Most of the institution's science policy and technical work is conducted by its operating arm, the National Research Council, created expressly for this purpose. These non-profit organizations provide a public service by working outside the framework of government to ensure independent advice on matters of science, technology, and medicine.”

The authors of the 2007 US General Accounting report on “peak oil”, for example, drew on the expertise of the NAS.

“To gain further insights into the federal role and other issues surrounding peak oil production, we convened an expert panel in conjunction with the National Academy of Science. These experts commented on the potential economic consequences of a transition away from conventional oil, factors that could affect the severity of the consequences and what the federal role should be, among other things.” (p. 3.)
U.S. General Accountability Office study: )

However, to me, the fact that the NAS has not been asked – either by Congress or by agencies, such as the DOE, to engage in a specific study of “peak oil”, including things like the work you do here, along with impacts and possibilities for emergency, contingency and mitigation planning, strikes me as a glaringly huge absence. “Stranger than true,” so to speak.

They also have not been asked to update (WRT to overarching conclusions) their most recent comprehensive energy study, which was completed in 1982.

Would this be a useful suggestion to make to people? To, say, ask their professional organizations to request relevant agencies(National Institutes of Health, FEMA, etc.) to ask the NAS to undertake a study. Likewise, individuals could ask their Congresspersons to direct a study.

The NAS is currently engaged in related energy studies, such as on fuel efficiency; also, there are and similarly-constructed international panels on GCC. But none - (at least not that I can find)- on “peak oil.”


1) I have reasonable confidence that the EIA and IEA will make some official statement about non OPEC production peaking this year. Now that Russia is in decline, non OPEC-12 crude is in decline and it will be difficult for the EIA and IEA to disagree with declining non OPEC crude. I have just sent another email to both the EIA and IEA, accompanied by the three charts from my post, asking the following:

Do you think that non OPEC-12 production of:

1. Total liquids peaked in 2007?

2. Crude oil, lease condensate, oil sands and natural gas plant liquids peaked in 2004?

3. Crude oil, lease condensate and oil sands peaked in 2004?

4. Crude oil and lease condensate peaked in 2004?

I'm hoping that you will at least answer yes to question 4 as the projections from the IEA and EIA indicate a 2004 crude and condensate peak as shown in the chart below (same as the third chart in my post).

Here is the answer from the EIA to the above four questions:

Subject: RE: Non OPEC Oil Production Questions
Date: Wed, 25 Feb 2009 13:37:39 -0500

Hello Mr. Eriksen,

In regards to your questions below, the EIA does not think that we have reached a resource driven peak in any of the four categories. I invite you to look at our latest long-term projections at so that you may read further on the market conditions (including supply, demand, and price) underlying each of our liquids supply projections. I also encourage you to visit to obtain more information on our views on resources, depletion, and peak oil.

Lauren Mayne
Office of Integrated Analysis and Forecasting
Energy Information Administration, U.S. DOE
1000 Independence Ave. SW
Washington, D.C. 20585

Below is a forecast scenario from the Sweetnam presentation to which Lauren Mayne referred. This EIA forecast shows an unbelievable 90 mbd peak plateau from 2020 to 2060. Sweetnam's assumption for this scenario is from slide 14: recovery factor 10-50%; initial in place of world oil of 21 trillion barrels; and OPEC produces at a constant 35 mbd. These are exceptionally optimistic assumptions.

Also in the chart, the EIA shows US conventional production almost staying constant from 2010 to 2080. I don't believe it. Other non OPEC production also stays constant from 2010 to 2050. I don't believe that either.

Total Petroleum Production to 2030 from EIA - click to enlarge

I also think that the official statements may be an indirect response to declining oil production such as that made on Feb 16 by the head of the IEA, Nobuo Tanaka:

"But when the economy starts growing, recovery comes again in 2010 and then onward, we may have another serious supply crunch if capital investment is not coming."

In other words, the IEA will blame declining oil production on insufficient capital investment.

2) Any action which would prompt the National Academy of Sciences to do a study on Peak Oil is a very good idea!

Here's an update of world crude, condensate and oil sands production forecast to the end of this century. The IEA WEO 2008 forecast is also shown which demonstrates their overoptimism.

This year's OPEC cuts are producing a steep fall off of the 74 mbd plateau which ended in 2008. If the world economy picks up slightly toward the end of this year then the fall from 2009 to 2010 should be smaller.

The green line shows the forecast if Colin Campbell's reserves estimates are used.

click to enlarge

Below is Colin Campbell's forecast for world total liquids, excluding bio-fuels, which shows a peak in 2008. This chart is from Campbell's January 2009 newsletter.

click to enlarge