Editor’s note: This commentary is by Ian Baldwin, of South Strafford, who is co-founder and publisher-emeritus of Chelsea Green Publishing Company.
[T]he crisis known as peak oil has long faded from public view with the crash of the price in 2008, the U.S. ramp-up of tight oil (and gas) through fracking, and the 2014-2016 global supply glut. Analysts now expect the oil supply-demand equation to balance and end the glut in 2017, in effect bringing a calm. A calm before the storm.
This is not a time to doze off.
Humanity used up half Earth’s estimated recoverable oil reserves in 2001. We hit peak conventional oil production in 2005. In 2008 the price of a barrel of oil peaked at $146 in mid-July — baking in the Great Recession — and then plummeted to $32 by year-end. The plunge in price had deep ramifications for future investment in the petroleum sector, which accounts for 33 percent of the world’s primary energy, and 94 percent of the energy its transportation systems use. Driven by demand in Asia, world demand is projected to continue to increase by about 1 percent each year until 2040.
By 2012 the oil industry was using more energy within its own production chains than what it delivered to the world economy’s end-users. During the first 15 years of this century, the energy returned on energy invested in the average barrel of oil likely halved.To keep the show going the oil industry borrowed $2.3 trillion more to produce oil than what it received when it sold the oil. The industry’s monumental debt is driven by faith that prices will rise sufficiently to enable repayment. But the price of oil is now determined by what end-users can afford to pay in order to be able to generate real GDP growth. And we know that recessions tend to occur when price climbs much above $60 per barrel.
Meantime, production of both conventional and unconventional oil appears to have peaked in 2015. New production of unconventional liquids costs, in most cases, more than $100 or even $120 a barrel to produce, refine and deliver. At a price of $50 per barrel only debt will ensure stabilization of ongoing global production.
If the Vermont PSB kills large-scale wind in favor of NIMBYism and a de facto business-as-usual outlook, it will be making a grave mistake.
Debt can buy time for only so long, and no longer. Denouement — 2018?
The energy returned on energy invested — net oil, and especially net oil per capita — is now in an inexorable decline due to numerous constraints, including those imposed by geology, physics (thermodynamics), climate change, economics, and population and consumption growth. Various analysts now estimate the oil age will end soon, as soon as the early 2020s or as late as some time in the 2030s.
As a result of these inexorable, vise-like forces, the oil industry started to cannibalize itself in 2012 as the energy returned on energy invested in each barrel of new oil had become uneconomic. The industry is no longer replenishing its reserves. Deliverable spare capacity this year may amount to as little as 1 percent of global demand. The consequences of this global cutback for the world economy — and Vermont’s — are likely to be huge, and may arrive sooner than expected.
This global situation perhaps explains why one of the most knowledgeable, experienced and powerful figures in the oil industry is now the U.S. secretary of state. If your goal is to continue with a business-as-usual economy, then what better choice can you make than Rex Tillerson?
Fortunately we live in a state where a business-as-usual set of assumptions is not driving energy planning for the state’s future. The state has assumed a goal for a 90 percent renewable-electric-energy-powered economy by 2050. The details of Vermont’s Comprehensive Energy Plan seem sound enough. It’s the timing that concerns me. Seriously informed industry analysts are predicting that the oil industry’s world production — now declining at roughly 5 percent annually — will collapse between the early 2020s and 2030s. One notable expert has predicted that the number of gas stations in the U..S will shrink by 75 percent by the early 2020s.
As a further, final caveat, the Vermont PSB is apparently considering making investment and deployment of large-scale wind in Vermont more difficult than it already is, by changing the 45 decibel outside-noise-level standard. If the Vermont PSB kills large-scale wind in favor of NIMBYism and a de facto business-as-usual outlook, it will be making a grave mistake. There is no chance of achieving its short-term goal of 25 percent of the state’s energy from renewable sources by 2025 without large-scale wind energy. Furthermore the collapse of the oil economy, whether slow (several decades) or fast (one or two decades) will alter the state’s approach to agriculture, which is radically dependent on oil. That means all Vermont farmland should be prioritized for preservation for agricultural use. And that means curbing deployment of solar arrays on farmland.
On Feb. 14, wind powered more than 50 percent of demand made on the 14-state Southwest Power Pool. If those states can do it, so can Vermont. Let’s take heart.
Links to sources (alphabetically by author)
Nafeez Ahmed, “Brace for the oil, food and financial crash of 2018” (25 January 2017) http://observer.com/2017/01/brace-for-the-oil-food-and-financial-crash-of-2018/
Louis Arnoux, “Twilight of the Oil Age,” (Parts 1, 2 & 3 – August 2016) http://www.resilience.org/stories/2016-08-02/some-reflections-on-the-twilight-of-the-oil-age-part-1/
Tim Clarke, “End of the ‘Oilocene’” (31 January 2017) http://www.resilience.org/stories/2017-01-31/end-of-the-oilocene-the-demise-of-the-global-oil-industry-and-of-the-global-economic-system-as-we-know-it/
Alistair Hamilton, “Brexit, Oil and the World Economy” (31 October 2016) https://www.youtube.com/watch?v=vHRHQZ1dpik
The Hills Group, “The Fate of the Oil Age” (2013) http://thehillsgroup.org
The Hills Group, “Depletion: A determination for the world’s petroleum reserve” (01 March 2015) http://www.thehillsgroup.org/petrohgv2.pdf
HSBC, “Global Oil Supply” (September 2016) http://pg.jrj.com.cn/acc/Res/CN_RES/INDUS/2016/9/7/55acd098-3229-47f4-b323-8e8524a4525e.pdf
Francesco Meneguzzo et al., “The energy-population conundrum and its possible solution” (2016) https://arxiv.org/abs/1610.07298
