After a friday evening mahjong session, a friend and I ended up talking about Peak Oil at 3am over dimsum. It’s probably my 8th time introducing a newbie to Peak Oil and I thought I should just organise my ideas in writing, refine the pitch and just redirect friends to this blog in the future.

For now, I’ll just dump the gist of the dicussion into a FAQ format.

What is Peak Oil?

In 1956 a geophysicist, Dr M. King Hubbert, who worked at Shell research lab predicted that oil production in the U.S. would peak in the late 1960’s to the early 1970’s. Hubbert believe that for any individual oil well, production will follow a bell-shaped curve – growing slowly at first, then in accelerating quantities until it hits a peak (a.k.a. Hubbert’s Peak) when 50% of the oil is pumped. The significance of Hubbert’s theory is that it holds true even when you move from one single well to an oil field, to the total oil production of any country and to the total oil production of the world.

Hubbert’s Peak Oil Theory, having been ridiculed by the industry at large, was finally given it’s day when the U.S. oil production actually peaked in 1971. Thereafter, Hubbert went on to predict the world’s peak production to come before 2000. This was later revised to 2005-2025 by peak oil proponents such as retired oil geologist and founder of the Association for the Study of Peak Oil & Gas (ASPO Dr. Colin Campbell (spring 2004) and Kenneth Deffeyes (16 Dec 2005), Hubbert’s format colleague and a professor emeritus at Princeton today.
While it would seem odd that oil has peaked but we’re all still ok is that it usually takes around a decade for the general public and media to ‘recognise’ it (as it had been with the acceptance of Hubbert’s prediction for the U.S.)

Well, it seem like we still have the 2nd 50% of world’s oil to go, so what’s the big fuss about oil right now?

First of all, oil production is not exactly like petrol in your car – whereas your car pretty much travel at the same rate of consumption of petrol at the 50%-mark, when oil production passes it’s peak, the rate of production will go into a terminal decline. That means less and less oil for the entire world year after year. Calculations have shown that the decline will be at the rate of 3% per annum. Oil also gets progressively more difficult to extract due to falling pressures and at the same time, the latter oil are heavy crude which is harder to refine. Then, there’s the factor of EROEI (energy return on energy invested) – when oil was first discovered in Texas, it was close to the surface and literally gushing out of ground and it took 1 barrel of oil’s worth of energy to extract 20 barrels of oil (EROEI is 20:1); contrast that to Canada’s oil sand with an EROEI of 3:1. Before the world’s oil even run out, EROEI will drop to 1:1 and it just doesn’t make any economic sense to extract it anymore.

Next, take a look at China and India’s booming economy now. These are the two most populous countries (1.3B and 1B) in the world and their middle income families have just started buying cars and aircon. Currently, the world’s oil consumption is growing at 3% per annum and it doesn’t look like it’s going to slow down anytime soon. To fully understand the significance of the <i>3% growth</i> here, I recommend that you tune in to Dr Albert Bartlett’s eye-opening lecture on Arithmetic, Population and Energy. To summarise it for you, the mathematics of it is this: while it took some 150 years to use the first 50% of the world’s oil, at the current 3% growth rate, the 2nd half will only take us some 23 years.

In 1986, OPEC held an extraordinary conference in Geneva and imposed a production ceiling of 17 million barrels per day on its members, with each member capped at their proportion of oil reserves. Following this, huge jumps in oil reserves were reported from all OPEC members.
Your instinctive unwillingness to believe this ’sudden surge’ of oil discoveries is well place because in January 2006, Kuwait finally came clean with the revision of its oil reserves from 99 billion barrels down to 48 billion. Given that the total world’s oil endowment is 2 trillion barrels to start with, Kuwait’s revision literally takes out 5% of what remains of all our oil from here. And, this is only Kuwait.

In summary, starting an optimistic view that there’s still 23 years of oil left (at today’s consumption rate), how many years do you think you’ll need to take away to account for 1) lower EROEI, 2) increasing consumption and most critically 3) overestimation of reserves by OPEC?

What about alternatives? Wouldn’t new energy technology save the day?

Biodiesel – still a net energy loser, i.e. takes more energy input per unit of output. Biodiesel based on any crop (sugar cane, corn, etc) will mean less arable land for food. For small countries, it’s not even an option.

Hydrogen – has to be sythesized from water with electricity, which in turn has to come from a power plant powered by coal/gas/oil. Hydrogen is not a source of energy, it’s a storage of energy.

Solar – look around your home and workplace and tell me how many modern devices are powered by solar? And for that matter, wind and hydro. FYI, almost all of our electricity in Singapore comes from oil and gas-fired power plants.

How would Peak Oil impact my life?

  • Economy – the world’s economy is predicated by energy. With energy, you can build factories, bridges, skyscrapers, drive to work, deliver food, etc. When the supply of energy shrinks, our economy will shrink likewise. I don’t want to sound too doomsday-ish but quite a number of literature I’ve come across predicts harder times than the Great Depression in the late 1920s.
  • Food – every calorie of food we consume takes about 10 calories of energy to produce, from powering harvesters, oil-based pesticides, food processing, cold storage and packaging, but excluding delivery and cooking. Singapore imports its pork (air-flown) from Australia and chicken from Brazil. When push comes to shove, people will have to start thinking about producing food locally, using manual labour and organic methods. Note: one of my biggest concern about Singapore is its innate inability to support local food production.
  • Electricity – this modern amenity of men has been so taken for granted that most would not be able to imagine living without it. Many countries have started to converted their power plants to be based on renewable energy resources (solar, wind, hydro). New Zealand, for instance, produces 60% of all its electricity with renewable sources.
  • Wars – I believe the only wars that will be fought from now on will be for oil. Watch your world news regularly alongside your list of the top 10 oil producing countries and check off where the troops are.

In short, peak oil affects every aspect of your life.

The pitch to my mahjong kaki took about an hour, after which he asked me straight in the face, “So, what can you do about it?” I waved to the waiter and ordered more dimsum and we continued for another one and a half hours. There’s alot I want to do and it’s not very organised at this point. I’ll blog about it on another day. Cheers!