Six months ago, John Greer published a blog post titled "This is what Peak Oil looks like." In it, he discusses the connection between certain geopolitical and socioeconomic trends and their connection to Peak Oil. How many of you tuned out when you read the words "Peak Oil?" You might want to reconsider your beliefs about oil production and consumption as you consider your plans for the coming years.
First, there are two different definitions of Peak Oil, and it's important to differentiate between the two. One definition states simply that oil, as a finite resource, will eventually reach a peak extraction rate. The more common definition, however, deals with trends and models and the attempt to describe the shape of the oil production curve, along with a predicted date for peaking. This is probably what you thought of when you read the phrase "Peak Oil", and you have likely heard of the long history of failed predictions made by the Peak Oil crowd, which makes one likely to dismiss the concept. Additionally, even if oil production were peaking, what can we do? This combination of uncertainty and impotence makes it difficult to engage with the topic. Still, there are actions we can take to both understand the issue and deal with potential fallout.
When it comes to Peak Oil, there is one primary data to focus on, and that's Global Net Exports of oil, or GNE. This number describes how much oil is exported on the world market, and so matches exactly Global Net Imports. This number represents the world supply of oil and is most important to Americans since we import a lot of oil. America is a net importer, and has been since our production peaked in the 1970s. This is a common point of confusion, as many reporters will say that we have begun exporting some petroleum products, and so we must have plenty of oil. This is not true! Our refineries are high quality and can handle some difficult types of oil, and so we produce more refined products than we consume. However, we still import more than 10 million barrels per day! We used to import a lot more oil, but recent increases in production and a large decrease in consumption has led to a decline in our oil imports. If you like charts and data, www.eia.gov is a great place to go to for a wide variety of charts and datasets about energy.
While there is readily available data for American energy usage, it is harder to find a single, easy source to look at Global Net Exports of oil. Google searches lead down a variety of paths full of dense text, but there are a few people summarizing the available data. One geologist, Jeffrey Brown, has tallied the net exports from the top 33 world oil exporters and found that global net oil exports peaked in 2006. Even those who criticize the concept of net exports admit that there has "been a regime change in the last 10 years", and only propose that eventually high oil prices will increase exports by impacting fuel subsidies. However, despite record high oil prices, there has been very little increase in world oil production, and no increase in net exports.
It is important to note that American oil imports began declining in 2006, the same year that oil exports peaked and oil prices began skyrocketing. Not only did Americans decrease our oil consumption, but we began drilling more expensive supplies of oil that would be profitable given stable high prices. These developments, along with oil developments such as the Canadian Tar Sands, indicate that major oil companies believe that expensive oil is here to stay, and that these expensive drilling projects are as good as it gets: if there were other, cheaper oil supplies, the oil companies would produce them instead.
Coming back to the original point, the economic and geopolitical turmoil we've been observing is exactly what Peak Oil would look like. Oil production has stagnated, ceasing its endless growth that we were used to in previous decades. Economic growth rates have also stagnated, causing problems with debt financing that have brought the Euro zone to the brink of collapse. Austerity plans cause even more economic pain and fail to alleviate the debt problem, while stimulus plans fail to result in sufficient growth to overcome debt burdens, although they do mitigate the impact on the lower classes who suffer most. Any amount of world economic growth feeds directly into an increased global demand for oil, which quickly runs into our inability to increase global oil production, raising oil prices. With great respect for Krugman's opinion that Keynesian economics offers the way out of our current mess, he has not yet addressed the negative feedback loop between stimulus, growth, and oil prices.
What can we do? First, we must acknowledge the reality as it is, not as we would wish it to be. We cannot simply stimulate ourselves into higher growth (and even more absurdly, we cannot slash taxes for higher growth). The high price of oil is due primarily to the fundamentals of supply and demand. Once there, we can begin to chart a path towards a much lower reliance on oil. Obama has already talked about this, and we have greatly increased our funding of the Department of Energy to research possible solutions.
As individuals, we can make choices to reduce our oil usage, including purchasing more fuel efficient vehicles, choosing our homes and jobs to minimize commute, and using public transportation when available. Many of these policies are already actively a part of the Democratic platform, but it is important to realize that if we promise stimulus to solve the problem, we may be sorely defeated by reality.
As bad as things seem, it's important to remember that our oil-related problems stem almost entirely from our great consumption rather than our lack of supplies. America remains one of the largest oil producers in the world, behind only Saudi Arabia and the Russian Federation. We have large stocks remaining, and recent high prices have helped us to reverse a decades long decline and begin increasing oil extraction rates. We have the resources and the know-how to overcome the problem, but first we have to acknowledge the truth of the situation. Whenever someone wants to tell you about how much oil there is, think about global net exports and how much America imports, and see if their facts change the fundamentals. We cannot simply wave a magic wand to switch to natural gas or any other fuel source, and anybody who claims otherwise is trying to sell you something.