Sunday, June 8, 2008

Sniffing for the Peak

My dog used to be able to smell the ocean from one hundred miles away. She would sleep in the back of the truck in relative boredom while we did the ski expedition to Colorado or Utah from California.

But as soon as we started down the Cajon Pass and that salt air from the Pacific was blowing against the mountains of the LA basin, that dog would pop up and start whining and barking like crazy. She knew we were going back to the beach.

That crazy dog used to follow me when I surfed Rincon. I would catch a wave on the outside point and ride it all the way into the bay and she would run along barking and howling the whole way. I don't know how she could tell which surfer was me, but she could.

Just like I still don't understand how that dog could sniff the slightest little bit of salt air and tell that the beach was not far away. She just could.

Lots of people are sniffing for the Peak in oil production right now. The game is on. And it's an interesting question. What pieces of data will be the definitive sign that world production has peaked and entered irreversible decline? Nobody knows.

During my almost daily discussions of Peak Oil with clients, they often ask how they will be able to tell we have reached the Peak? The usual answer is to paint a picture of the graph of world oil production. Go back 150 years to Drake and move forward to 87 million barrels per day in June 2008. Maybe 1.3 Trillion barrels total produced over the last 150 years, maybe about the same left. Plotted on a graph with one year tick marks makes it pretty tough to tell that global production is dropping off at all. As Simmons has pointed out, the numbers are pretty coarse and most are highly political. As a matter of national security, what country is going to release info that reveals a Peak? Nobody!

Hubbert said that it took about 3 years to definitively reveal the Peak in US production back in January 1971. And the global production curve is bigger and therefore by definition more coarse. And everybody knows that statistics are routinely manipulated to support various politics and policies. Maybe a "1987 Black Monday" can be readily identified on a chart but the Peak of global oil production is not expected to be anything so dramatic. That's the problem.

So, we wait. And wonder. Sniffing the air for the first scent.

How about this? When you turn on the evening news, meaning mainstream American propaganda at it's finest, and the talking heads are babbling about a Saudi Aramco executive who has just admitted that production in the Ghawar oilfield has Peaked, then you will know that global production has peaked. Simple. As Saudi goes... so goes the world. Do I expect that to ever happen? No, of course not. There would be a panic.

The follow up question to "How do I tell that oil has Peaked" is, "Will there be an economic crash?" Well, think it through for yourself. Consider the Strategic Petroleum Reserve in the US. Why is there such a thing? Well, the August 2006 US GAO report on the SPR clearly states that "even small disruptions in supply can cause large increases in [oil] price." What the GAO report does not discuss is a permanent "disruption in supply." Like from Peak Oil. The SPR was designed to guard the economy from disruptions like a Hurricane or a closure of the Strait of Hormuz. It cannot possibly guard the economy against a permanent decline in global production! 

Will that lead to an economic collapse? Well, it depends. Do you believe that governments or corporations can implement a scaled-up replacement energy supply in an extremely short time? If you do, then I would have to ask you why we are waiting? Why would any government or corporation take even a slight risk of something as serious as a large scale, perhaps global economic collapse? This is a real life disaster flick that we all are going to having a starring role!

Meanwhile, back at the ranch, some of us are sniffing for the Peak. Is that barking that I hear?

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