Texas Monthly talks with two online energy experts concerning peak oil and the future of energy demand.
Nate Hagens is an editor of The Oil Drum, an online community that seeks to raise awareness about energy issues. A Ph.D. candidate in Natural Resources at the University of Vermont, Hagens’s particular areas of interest are the principles of net energy and the bio-physiological factors that drive our energy demand.
Matt Savinar is the editor and writer of Life After the Oil Crash, a blog which paints a bleak picture of what life on earth will look like when natural oil supplies run out. Savinar recently received his J.D. from the University of California at Hastings College of the Law, and his work is quoted extensively on the floor of the United States Congress
One article in this month’s issue of Texas Monthly centers on Matthew Simmons, a Houston investment banker described as the most fervent apostle behind the idea of peak oil. How does the apocalyptic world that Simmons and other energy pessimists foresee in the near future—massive food shortages, a falling standard of living, wars—compare to your own predictions? What does the world look like with less oil?
Hagens: Oil is the lifeblood of industrial civilization because it is so embedded in our transport system. Over ninety percent of our goods arrive by way of an an engine that uses liquid fuels. One barrel of oil has the same amount of energy of up to 25,000 hours of hard human labor, which is 12.5 years of work. At $20 per hour, this is $500,000 of labor per barrel. The average American consumes over twenty-five barrels per year. So each of us has a huge subsidy of energy behind the scenes that we often take for granted. Less oil, and much more expensive oil, will have huge implications.
Savinar: The key point is how people and nations will react when the energy pie begins to shrink. Human nature is the key variable here. As violent as the 20th century was, the violence was kept in check largely because the energy/wealth pie was increasing for all the major parties. Yet we fought two world wars, both motivated in large part by the need for oil. As bad as that was, it’s about to get a whole lot worse as the pie continues shrinking.
What are your thoughts on the idea of peak oil? How concerned should we be?
Hagens: The questions that remain are the timing of the peak and the subsequent steepness of the global decline rate. Individual wells, regions, and nations all peak in oil production, then enter permanent decline. This happened in 1970 in the United States, where our production has declined almost every year since. When the U.S. peaked, we had cheap coal and natural gas to switch to, and vast reserves in the Middle East and other countries to pay for with dollars. We have no new Middle East to go to when the world peaks. So, I’m extremely concerned.
Some of the most fervent pessimists say that the worldwide oil peak—the date after which production begins to decline—was reached in 2005. The most optimistic supporters of the idea put the date at 2037. What year do you believe we did or will peak?
Hagens: One problem is we’ve already started to aim at a moving target. The high in crude oil production was in May 2005. If we count Natural Gas Liquids, ethanol, and biofuels as oil, then we are still making all-time highs as recently as November. But all “liquids” are not equal. Not only do ethanol and NGPLs have less than seventy percent of the energy as crude oil, but we have to consider that we are using more oil and other energy sources to procure much of this new production. We should be more concerned about the “net.” Production of cheap oil that was found forty years ago, but is now watering out, is being replaced by oil that costs $30, $40, or even $70 per barrel to find and develop. Furthermore, exporting nations are increasingly using more of their oil and gas internally, freeing up less for the world export market. I expect by 2012, we will look back and say we peaked between 2005 and 2010.
Savinar: The more data that comes in, the more it looks like 2005 or 2006 was the peak. Unlike the pessimists, most of the optimists have never actually worked in the oil fields. They tend to be economists or business majors who have spent their careers moving around abstractions or looking good in suits while others did the real work. But asking “when is the global peak?” is largely a moot point. The question for a nation like the U.S. is when exports peak, since we are so dependent on imports. Once exports peak, our way of life comes crashing down.
What does peak oil mean for Texas in particular—a state strongly considered the energy capital of the world? How will a deteriorating oil industry affect the state’s economy?
Hagens: There is a large difference between oil resource, oil reserves, and oil production. Clearly, there are large amounts of oil left underground, but if it costs $100 to get it out, and it only sells for $90, the “resource” isn’t of much help. Texas will have an advantage with expensive energy in general because the natural gas, oil, and wind energy that Texas creates will go up in value more than the average products that other states produce. And the oil industry doesn’t have to deteriorate—it can use more advanced recovery techniques. But throwing good money after bad is a real risk in oil exploration in this country. People have to look ahead not only at oil revenues, but the costs.
Savinar: Once exports peak, the U.S. will have to get by with its own domestic production. The bulk of this comes from Texas, California, and Louisiana, with some pockets in other states. I expect full-blown regional oil wars in these areas as everybody jockeys for what’s left here domestically. People—particularly the former middle classes—are going to be very angry. They’re likely to blame the oil industry for the high prices or unavailability of fuel. In their minds, if gas isn’t nearly free, there must be a conspiracy by the oil industry to personally screw them over.
When the demand for oil begins to significantly outweigh the supply, where will we turn? By the time we start to use alternative energy forms in earnest, will it be too late?
Hagens: The bottom line is we are going to be increasingly dependent on oil imports. A recession started by the credit crunch may temporarily cause the drop in oil demand to exceed the decline rate—hence lower prices—but, in general, we are in for a permanent, and perhaps dramatic, increase in oil prices for the rest of our lives.
Savinar: We won’t get seriously motivated to invest in alternatives until oil is in the $200 [per barrel] range. At that point, gas will be $10 [per gallon]. This will collapse the economy and set off massive wars. The capital and resources necessary to power some type of transition will thus be in short supply or all together unavailable.
Something must replace the oil industry; some form of energy will always be needed. Is there room and time for Houston to shift from one industry to the next to retain its place as an energy capital?
Hagens: Alternative energy is essential, but all energy is not equal. Oil has particularly unique properties in its energy and power density, and it is liquid at room temperature, making it easily transportable. Natural gas and coal aren’t as plentiful and cheap as they used to be either. Texas has a large advantage in wind, which has similar energy returns to oil, so to scale wind as much as possible might retain Houston’s reign as the energy capital. The ultimate answer, although few want to address it, is on the demand side; using less energy and living more locally. In fifteen to twenty years, Texans will be proud when they look back and see that they successfully planned for water, food, energy, and environmental systems in a world of expensive energy.
What steps are needed to significantly decrease the demand for oil in the U.S. on the kind of drastic timetable that oil and energy pessimists are predicting we will have to follow?
Hagens: Oil is far, far more valuable to our civilization than we have been paying. In Europe, they have taxed gasoline heavily for many years, and people have therefore designed their lives a little better around higher gas prices (in Norway, gas is over $8 per gallon, even though Norway is a big oil exporter). We need to gradually, but stiffly, increase the price of gasoline and electricity. We live on a finite planet, yet we have a growing population with nearly infinite desires. The intersection of these two trends is rapidly upon us.