To paraphrase the late Sen. Everett Dirksen, “400,000 barrels here, 400,000 barrels there. Pretty soon, you’re talking about a lot of oil.”
I am referring to the recent announcement by BP that it is temporarily shutting down its Alaskan oil operations in Prudhoe Bay. Corrosion in the 30-year old transit lines makes it unsafe to continue operations. BP is removing 400,000 barrels per day of oil from the world’s markets. Repairing the transit lines, which gather oil from the wellheads and move it to the main pumping stations along the Alaska Pipeline, will take many months to accomplish. In the interim, the world will simply do without 400,000 barrels of oil every day (though BP has said it is working on bringing back a portion of production).
How much is 400,000 barrels? Imagine 26 Olympic-sized swimming pools, each filled to a depth of over six feet with oil pumped from the ground. Or compare 400,000 barrels with the capacity of a modest-sized oil tanker (not to be confused with an ultra-large crude carrier that can hold about 2 million barrels).
What does it mean not to have access to 400,000 barrels of oil? Imagine that tanker ship sinking _ every day. That is how much oil is no longer available to the world’s markets. 400,000 barrels is not quite 5 percent of U.S. daily oil production. 400,000 barrels is about 0.5 percent of daily world oil extraction, which presently totals about 84 million barrels per day.
Within 24 hours of BP’s announcement that it was shutting off 400,000 barrels per day of oil extraction, the anticipation of future scarcity drove the price of oil upward on world markets by about $2.50 per barrel. Multiply this by the total 84 million barrels of world daily oil consumption. It adds about $210 million to the world’s daily oil bill.
There is another, even larger aspect to the BP announcement and the dramatic market reaction. This involves the concept called “Peak Oil” _ a shorthand way of describing a critical geological concept that you ignore at your peril.
Peak Oil is based on a large and powerful body of evidence that mankind has reached a “peak” in its ability to extract and recover the relatively light, sweet (i.e., low-sulfur content) rock oil of the planet through the use of traditional industrial methods of recovery.
The Peak Oil concept was pioneered by a U.S. geologist named M. King Hubbert (1903-89), who correctly predicted in the 1950s that U.S. domestic oil extraction would “peak” in 1970, which is exactly what occurred.
In recent years, other geologists have been applying Hubbert’s methodology to the world’s petroleum database. Current Peak Oil predictions range from “we are there now” to the peak’s occurring before 2020. Whether Peak Oil is now, or in 15 years, we have a very big problem because growing demand for oil has already outstripped the ability of the world oil industry to supply product.
I mentioned above that the world is extracting about 84 million barrels of conventional oil per day. This number has been holding steady for a while, because so-called “new production” from new oil wells is offset by depletion of oil reserves in known oil provinces. For example, the governments of both Mexico and Kuwait have announced that their principal oil fields (Cantarell and Burgan, respectively) have entered a phase called irreversible decline. (And there is much well-informed argument over whether Saudi Arabia may also be in the same predicament.)
The bottom line is that 84 million barrels of conventional oil per day appears to be the maximum that the world’s oil industry can deliver. The future of conventional oil extraction is a globe-spanning curve of irreversible decline.
Peak Oil is also a means of stating that about half of all the conventional oil in the crust of the Earth has been located and extracted. What will mankind do in the future? Good question: Modern, and certainly Western-style, economic life is based on the ready availability of large quantities of relatively cheap, easily refined petroleum.
The industrial plumbing, as well as the financial wiring of the global economy is tied to a rapidly vanishing legacy of relatively available and affordable oil. This is what has evolved over the past 140 years or so. Thus, we are all both products and prisoners of history.
But absent relatively cheap and available supplies of oil, the economies and societies of the world will have to rebalance themselves to function at a lower, and constantly declining, average state of oil availability.
The immediate impact of Peak Oil is that the price of oil has steadily risen for the past several years. A shock to the system, such as the BP announcement concerning Prudhoe Bay, can drive prices up very sharply. But while Peak Oil is a very real phenomenon, so are markets and market mechanisms. People and industries around the world are beginning to exploit lower-quality substitutes such as heavy oil and tar sand, or turning to coal-to-liquid processes. While this may lead to some future supplies of liquid hydrocarbon product, it also means that consumers, businesses and governments everywhere will have to pay more, and invest more capital, to obtain less net energy.
The world economy is moving away from one of the key economic assumptions of its past. Since the 1860s, the developed world’s collective sum of economic activity has benefited from continuing and assured access to relatively inexpensive supplies of oil, whether from Texas or Saudi Arabia. Only wars and other very occasional events, such as the Iranian Revolution of 1979 and 1980, have interrupted the trend.
It’s time to say farewell to the oil age. The future is one of rapid transition to a world economy hamstrung by irreversible decline in available volumes of conventional oil. Oil supplies of the future will be severely constrained, highly volatile and very expensive. You can expect to see chronic shortages on a routine basis.
The ability of nations all over the world to maintain real, inflation-adjusted gross domestic products will be severely constrained by these impending oil shortages. And the increased cost of energy across the board, and certainly for the energy contained within a usable barrel of oil, will drive up the rate of inflation.
I began this essay with a reference to Sen. Everett Dirksen. He was also fond of citing the French writer Victor Hugo, who wrote that “Stronger than all the armies is an idea whose time has come.” The time has come for people to accept the idea of Peak Oil. Start planning now.
(Byron W. King, a lawyer and former geologist, lives in Mt. Lebanon, Pa. E-mail bwking(at)bellatlantic.net.)