Peak Oil

Way back in 2006, I was interviewed for a syndicated business TV show. I was asked what I thought the $50/price per barrel of West Texas Crude might climb to in 2008. I suggested that oil would reach $125/barrel. The Goldman Sachs guy they had recruited said that it would be around $60/barrel.

In 2008 the price of a barrel of oil peaked at $147.

For the next five years I was very accurate on the price of West Texas Crude. This was in part that I believed in the thesis of Peak Oil. I was not right back in 2006 that Peak Oil would happen within a few years ,but there is growing consensus it will happen soon. [Why I am writing about this now will come later in this column].

What does Peak Oil mean?

Wikipedia states:

“Peak Oil is the point when global oil production reaches its maximum rate, after which it will begin to decline irreversibly”

This implies that the total amount of oil available in Earth prior to the Industrial Revolution has been fully extracted year after year to the point where either the cost of drilling is prohibitive, or the availability of oil has been severely depleted. The simplistic way I thought about it in 2005-06 was that the remaining oil “in the ground” was either half of what had been extracted to date or oil that was very costly to extract [such as underneath the ocean floor.]. The idea was that prices for oil would increase to be more than triple figures due to scarcity and cost of extraction. That was why my answer of $125 made sense to me though it caused ridicule elsewhere.

The big global energy picture is that petroleum is nearing the end of its two-century run, and simultaneously, the price of solar and wind has plummeted to the degree that both are less expensive than oil or coal. Given the universal – except for Trump and his political hires- understanding that fossil fuels pollute and that the emissions have triggered global warming the need to get humanity off of petroleum has been understood for decades.

So I forecast that the price of oil will go up significantly over the next decade, when it becomes clear to the majority of humanity that we are approaching Peak Oil. This will be a good thing as the cost of clean energy is already lower than current fossil fuel prices and when oil prices climb the differential will be even larger.

In recent columns, here and here, I set forth that the Trump administration is choosing ignorance when it comes to the climate crisis. The position of this administration is to be fully supportive of fossil fuels and to denigrate wind and solar power. Given what humanity knows about the climate crisis this is both a stupid and dangerous position. Stupid because it chooses to not pay attention to science and dangerous because it risks all living things.

The International Energy Agency – a globally respected entity - recently suggested that humanity would be entering the Peak Oil era. To quote a recent New York Times article about this:

“Year after year, the International Energy Agency publishes detailed data on how much energy the world uses, where that energy comes from, and what the global energy picture may look like in the future.

Lately, the I.E.A.’s influential forecasts have suggested that global demand for oil and gas could peak by the end of the decade as electric-vehicle sales grow and the cost of solar panels and battery storage plummets.

That has landed the agency and its boss, the outspoken Turkish economist Fatih Birol, in the cross-hairs of the Trump administration.

Chris Wright, Mr. Trump’s energy secretary and a former fracking executive, has called the agency’s projections of peak oil demand “nonsensical” and has said the United States could withdraw from the global organization if it doesn’t change the way it operates. House Republicans have said the agency is publishing “politicized information to support climate policy advocacy” and have threatened to withhold U.S. funding. The United States provides around 14 percent of the agency’s budget and is among its 32 member states.”

Yup, shoot the messenger and assume the ostrich position. Stunningly stupid and ignorant.

The article from the New York Times has these various predictions of when Peak Oil will occur:

BP 2025

BloombergNEF 2029

Equinor 2030

I.E.A. 2030

Exxon/Mobil 2050+

OPEC 2050+

What jumps out at you? The fact that one oil company, BP, thinks that Peak Oil will happen this year and two bigger concerns, Exxon/Mobil and OPEC, think that it is 25 years away. I tend to think that the I.E.A. would provide the most accurate estimate as it does not have some bias baked in.

This brings up yet another disappointment with the Trump Administration, the fact that the I.E.A. recently came out with their estimate of 2030 and the administration has doubled down on fossil fuels, so they didn’t want anyone raining on their delusional parade. Their leader, Fatih Birol, has stated that he thought that:

“The transition to clean energy is happening worldwide and it’s unstoppable,” he said in 2023. In July, the agency said that renewables are poised to overtake coal as the leading source of electricity next year.

Yet Mr. Birol has also been at pains to stress that the world will rely on oil and gas for some time, even if demand does peak. In March, at a major oil and gas trade show in Houston, he said the world would still need to invest heavily in oil and gas extraction in the years ahead to offset the decline of existing wells. “There is a need” for continued investments in oil and gas, Mr. Birol said, “full stop.”

The Trump Administration has consistently rejected the IEA forecasts for peak oil demand, stating that they were “nonsensical” and interfere with fossil fuel investment. Last month, officials of the Trump Administration began pressuring the I.E.A. and threatened to stop U.S. funding over the I.E.A.'s “green-leaning” analysis.

Alice in Wonderland stuff.